Download - Struktuirani proizvodi-Erste brošura
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Der praktische Ratgeberfr Ihr SanierungsprojektHigher return, higher safety.Erste Group bonds andstructured products.
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Dear investors,
The markets are continually on the move, and as the past has shown us, these moves can
be of a dramatic nature. We all are therefore now more than ever faced with the question,
What investment is the right one at this point in time? Of course this is a question that every
investor will have to answer themselves. We cannot take his investment decision for you. But
we can offer you products that will allow you to implement your opinion on where the market is
headed in an optimal and cost-efficient way. Bonds and structured products are two of the most
important portfolio modules.
Bonds offer you a fixed or variable interest rate and tend to make up the more conservative
part of the portfolio. With structured products you can benefit from both rising and falling
markets. This brochure is meant to give you an overview of the specific advantages and theessential differences. Of course we will also alert you to the respective risks.
One common denominator of our products: they all are transparent, come with low fees, and
are negotiable at all times.
We invite you to take an exciting trip with us through this world of products.
Your expert team of Erste Group
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LeveragePortfoliooptimisation
Valueconservation
Overview An overview of Erste Group 04 Product overview 05
Value conservation Mortgage and municipal bonds 06 Bank debentures 08
Guaranteed products 10
Best Garant products 12
Performance Garant products 14
Structured Bonds 16
Portfolio optimisation Foreign currency bonds 18 Index certificates 20
Bonus cer tificates 22
Reverse convertible bonds 24
Protect bonds 26 Discount certificates 28
Express certificates 30
Leverage Turbo certificates 32 Warrants 34
Taxation Tax information for private individuals subject totaxation in Austria 36
Customer service Contacts and information 37
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Product overview
The market of bonds and structured products is
growing very rapidly. There are countless different
types of products available, and even professionals in
the industry sometime find it difficult to keep track. For
this reason, we have categorised the most important
products for you in a simple form.
You will be able to see at first glance what opportuni-
ties and what risks are associated with any particular
product and what product is best suited for investors.
Higher return vs. higher safety:Its your choice
The following graph shows the relationship between
risk and return. Because one thing is for sure: thehigher the risk, the higher the possible return, and the
lower the risk, the more conservative the expected
return.
New quality standards for all bonds and structured
products are aimed at providing the investor with an
even higher degree of transparency:
Clear categorisation with regard to product type
(maturity, market expectation, capital guarantee,risk)
Terms in line with the market
Comprehensible and interesting structures for
the customer
Positive aggregate return in realistic market
scenarios
Value conservation
Mortgage and municipal bonds
Bank debentures
Guaranteed products
Best Garant products
Performance Garant products
Structured bonds
Portfolio optimisation
Foreign currency bonds
Index certificates
Bonus certificates
Reverse convertible bonds
Protect bonds
Discount certificates
Express certificates
Leverage
Turbo certificates
Warrants
Risk
Return
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Mortgage and municipal bonds
What are mortgageand municipal bonds?
Mortgage and municipal bonds are secured, fixed-
income debentures. Their special feature is the fact
that on the one hand the issuing bank guarantees thesafety of the bond with its rating. And on the other
hand, mortgage bonds are directly collateralised by
liens on property and buildings. The value of municipal
bonds is secured by claims against the public sector.
Regulated by public lawand recommended
Both the issue process and the documentation of
the collateral of mortgage and municipal bonds are
regulated by law. The collateral of the mortgage bonds
is entered into the mortgage register as a list of liens.
This means that the value of a mortgage bond is
covered by real property. States and municipalities
are liable for the redemption of a municipal bond with
their income from taxes and duties. The steady flow of
income of the municipalities represents a safe haven
in times of crises. Both kinds of bonds are therefore
considered legal investments under Austrian law
(Austrian Civil Code).
How do mortgage andmunicipal bonds work?
Mortgage and municipal bonds generate interest
(coupon) payments that are fixed by amount and
schedule. At the end of maturity the investor receives100% of his money back. The invested capital is
secured by collateral. Given the high degree of safety,
the interest rate is moderate.
Your benefits
Mortgage and municipal bonds are ideal if you are
looking for a long-term and very safe form of investment.
You like to stay on top of your finances and want a
precise picture of your assets on the basis of a fixed,
constant stream of income at every point in time.
Mortgage and municipal bonds are therefore suited toproviding for your children.
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Valueconservation
How do mortgage andmunicipal bonds react to
rising interest rates?
When interest rates are rising, mortgage and
municipal bonds with lower interest rates lose value.If you sell these bonds prior to maturity, you may
record a loss.
stable interest rates?
In the case of stable interest rates, the price of
mortgage and municipal bonds does not change.
falling interest rates?
When interest rates are falling, mortgage and
municipal bonds with higher interest rates gain value.
If you sell these bonds prior to maturity, you may
record a profit.
Your advantages
You benefit from attractive interest payments
on your capital.
You enjoy a legally protected, very high degree
of safety.
Income and payment dates are clearly scheduled
ahead of time and thus exactly calculable.
Details you should be aware of
Between issue date and maturity, price fluctua-
tions are possible, which means that the sale of
the bond prior to maturity may result in a loss.
The 100% capital redemption only applies to the
end of maturity. 0607
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Bank debentures
What are bank debentures?
Senior bonds are fixed or floating-rate debentures
issued by banks, are fixed or floating-rate issued by
banks, savings banks, and other credit institutions in
order to finance their lending business. The maturitiesof the bonds are largely medium to long-term. The
coupon is usually paid once a year.
The issuing institute is liable with all its assets for
the timely honouring of the coupon payments and the
redemption. In addition, the claims arising from bank
debentures are deemed direct, unconditional, and
non-subordinated, i.e. they have senior debt status.
In the case of insolvency, you, the holder, take priority
in having your claims satisfied from the bankrupts
estate before all other creditors. When buying bank
debentures, you should pay attention to the rating of
the issuing credit institution.
How do bankdebentures work?
The investor buys the senior bond and in return,
the investor receives periodical interest payments
(coupons) and the redemption at the end of maturity.
The coupon can be fixed or variable. At the end of
maturity the senior bond is redeemed in full, i.e. paid
back, or in the case of a redemption plan, paid back in
instalments.
Your benefits
A bank debenture is ideal for you if you want to invest
your money in the medium to long term. You receive
attractive interest rate payments for tying up your
capital in this form of investment. The credit institutionguarantees the interest payments and the redemption
at nominal value. Bank debentures offer additional
benefits in that they balance out the higher risk of
other investments in the portfolio.
Your advantages
You benefit from attractive interest payments
throughout the entire term of the bond.
The payment dates are fixed in advance.
You enjoy a high degree of safety.
Details you should be aware of
Between issue date and maturity, price fluctua-
tions are possible, which means that the sale of
the bond prior to maturity may result in a loss.
The 100% capital redemption only applies to the
end of maturity and depends on the solvency of
Erste Group Bank AG (default risk).
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How do bank debenturesreact to
... rising interest rates?Bank debentures with fixed interest rate fall when
interest rates are rising. If you sell this debenture priorto maturity, you may record a loss.
Bank debentures with floating interest rates, on the
other hand, benefit from rising interest rates. Given
that these bonds (floaters) have their interest rate
periodically adjusted to a referential rate such as the
Euribor, an increase in the level of interest rates also
means a rising interest rate for the bond. The price of
the bond tends to oscillate around face value.
... stable interest rates?
In the case of stable interest rates, neither the price
nor the coupon of the bank debentures change.
... falling interest rates?Bank debentures with fixed interest rate increase when
interest rates are falling. If you sell these debentures
prior to maturity, you may record a profit. Falling inter-
est rates, on the other hand, have a negative impact
on bank debentures with floating interest rate. Given
that these bonds (floaters) have their interest rate
periodically adjusted to a referential rate such as the
Euribor, a decrease in the level of interest rates also
means a falling interest rate for the bond. The price of
the debentures tends to oscillate around face value.
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Guaranteed products
What are guaranteedproducts?
In addition to our Best Garant products we also offer a
number of other guaranteed products, like Perfor-
mance Garant products. Those, too, focus on the fullprotection of the capital invested and on interesting
return opportunities. Essential features are return
opportunities that do not depend on the direction the
underlying instrument is taking as well as variable
payout structures (e.g. highest value guarantee or
guaranteed average performance of the underlying
instrument).
The products of this category therefore offer you a
lower degree of risk for your investment in combination
with attractive return opportunities.
How do guaranteedproducts work?
If the underlying instrument goes the expected way,
you participate in its per formance and receive an
attractive bonus return on top of any minimum return
agreed. Your participation in the development of the
underlying instrument tends to be partial, or up to a
certain cap. In return the issuer grants you the capital
guarantee. If the underlying instrument goes against
expectations, the capital invested is still safe and you
receive a minimum payment in accordance with the
structuring of the product.
Depending on the structure, you may also benefit from
sideways or negative movements of the underlying
instrument on top of the return you may have earned
from its price increases.
Your benefits
The focus of this group of products are the capital
guarantee and the manageable maturity of up to five or
six years. On top of that, capital guarantee products
offer you a chance of surplus returns that may besubstantially above the market yield.
Your advantages
You have the chance of attractive returns with
or without minimum payouts.
You benefit from capital guarantee at the end of
maturity.
You participate in the development of domestic
and international markets.
Details you should be aware of
Depending on the specific product, you may
participate only partially or up to a cer tain cap
in the performance of the underlying instrument.
Between issue date and maturity, price fluctua-
tions may occur, and selling prior to maturity
may result in a loss.
The capital guarantee only applies to the end
of maturity and depends on the solvency of
Erste Group Bank AG (default risk).
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How do guaranteedproducts react to
rising, stable, or falling markets?
Depending on the structure of the product, the price
development hinges on the underlying instrument.Guaranteed products may benefit from rising, sideways,
and falling movements in the markets, which is why
you would have to look into the structuring of the
specific product.
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Best Garant products
What are Best Garantproducts?
The essential features of the Best Garant products are
the capital guarantee, the medium-term maturity of up
to five years, and the annual minimum interest payoutduring maturity or minimum redemption above 100
% at the end of maturity. On top of that, Best Garant
products offer you the chance of an additional return
based on the development of the underlying instru-
ment.
How do Best Garant productswork?
If the underlying instrument goes the expected way,
you participate in its per formance and receive an
attractive bonus return on top of the minimum return.
Your participation in the development of the underlying
instrument is only partial, or up to a certain cap.
In return the issuer grants you the capital guarantee.
If the underlying goes against expectations, the capital
invested is still safe and you receive a minimum
payment in accordance with your agreement.
Depending on the structure, you may also benefit from
sideways or negative movements of the underlyinginstrument on top of the return you may have earned
from its price increases.
Your benefits
The focus of this group of products is the capital guar-
antee and the attractive minimum return. In addition
to that, Best Garant products offer you the chance of
surplus returns that may substantially outperform the
market yield.
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Your advantages
You have the chance to receive attractive
returns. Your capital invested is fully protected.
During maturity you receive a minimum couponor a minimum redemption payment at the end
of maturity.
You participate in the development of domestic
and international markets.
Straightforward terms the maximum maturity
is five years.
Details you should be aware of
Between issue date and maturity, price
fluctuations may occur, and selling prior to
maturity may result in a loss.
The capital guarantee only applies to the
end of maturity and depends on the solvency
of Erste Group Bank AG (default risk).
How do Best Garant productsreact to
rising, stable, or falling markets?
Depending on the structuring of the product, the price
development hinges on the underlying instrument.Best Garant products may benefit from rising, side-
ways, and falling movements in the markets, which is
why you would have to look into the structuring of the
specific product.
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Performance Garant products
What are Performance Garantproducts?
The essential features of the Performance Garant pro-
ducts are the capital guarantee and the participation
in the performance of an underlying instrument suchas shares, indices, or funds. The maximum participati-
on may be capped. The maturity is medium to long-
term.
How do Performance Garantproducts work?
If there is an increase in the underlying instrument,
the investor participates in its performance up to a
certain cap, if existent. You can also rely on a capital
guarantee from the issuer.
If the value of the underlying decreases, the notional
of 100% of the capital invested is paid back at the end
of maturity.
Your benefits
The Performance Garant products offer a capital gua-
rantee and direct participation in the underlying. This
means you have the chance of surplus returns that
may be substantially above the market yield.
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Your advantages
You can benefit directly from the performance of
an underlying instrument.
You have the chance of surplus returns that may
be above the current market yield. Your capital is fully protected by the capital
guarantee given by the issuer.
Your capital is invested for a manageable term
of up to six years.
Details you should be aware of
During the life of the bond, price fluctuations
may occur, and selling prior to maturity may
result in a loss.
The price fluctuations of the bond are not
synchronised 1:1 with the underlying over the
life of the bond.
The capital guarantee only applies at the end of
maturity. Investors of this bond bear the default
risk of Erste Group Bank AG.
Your return may be capped, even if the under-
lying shows a better performance during the
observation period.
How do Performance Garantproducts react to
rising, stable, or falling markets?
The performance of the Performance Garant products
is based on the respective underlying. If the price ofthe underlying rises, you participate in the develop-
ment of the underlying up to a certain cap, if existent.
If the price of the underlying falls or remains stable,
you can rely on the capital guarantee given by the
issuer at the end of maturity. Rising interest rates may
negatively affect the price of the bond.
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Structured bonds
What are structured bonds?
Structured bonds are debt securities that feature
individualised terms and therefore come in a range of
different shapes and sizes. A feature of these bonds
is the coupon payments that depend on the develop-ment of an interest rate or a spread. Structured bonds
are attractive alternatives to conventional debt securi-
ties, because their terms can be defined flexibly.
The structure of the bonds may result in attractive
earning opportunities. Floating-rate notes which pay
a fixed minimum coupon are structured bonds, too.
How do structuredbonds work?
The maturity, repayment and interest rates (coupons)of a structured bond are defined by the individual terms
of issue. The flexibility of the structure makes it
possible for the bond to take advantage of current
opportunities on the bond market and of fer attractive
yields.
Your benefits
Structured bonds offer you above-average return
opportunities if the expected yield scenarios come
through. The flexible terms allow you to benefit from
the opportunities arising on the interest market at anygiven time.
Your advantages
You profit from the very attractive interest paid
on your principal.
The yield opportunities are higher than on
classic bonds.
The repayment of the principal is guaranteed
upon maturity.
Details you should be aware of
Price fluctuations are possible during the life of
the bond and therefore premature selling could
result in a price loss.
These bonds may carry higher risks than classic
bonds due to the individual bond terms.
Repayment of the principal at 100% applies only
upon maturity and depends on the solvency of
Erste Group Bank AG (default risk).
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How do structured bondsreact to
rising, stable, or falling interest rates?
The maturity, repayment and interest rate payments of
a structured bond are determined by the individualterms of issue.
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Foreign currency bonds
What are foreign currencybonds?
Foreign currency bonds offer fixed or variable coupons
that are denominated in a currency other than the
Euro. The maturity of these bonds can vary, too.The coupons are usually paid out once a year.
If you hold a foreign currency account in the respective
currency, the coupons accruing to you over the life of
the bond and the redemption proceeds can be paid out
at the end of maturity in foreign currency. If you do not
hold a foreign currency account in the respective
currency, the coupons and redemption proceeds are
exchanged into Euro at the exchange rate and paid out.
As Euro investor you bear the currency risk, since the
bonds are traded in foreign currency and both interest
payments and the repayment take place in the foreigncurrency.
How do foreign currencybonds work?
The investor buys a foreign currency bond and receives
regular interest rate payments (i.e. coupons) in foreign
currency over the life of the bond.
At the end of maturity the foreign currency bond is
redeemed at 100%, bearing in mind the default risk of
Erste Group Bank AG. If you hold a foreign currency
account in the respective currency, the redemption
proceeds are credited to the account at the end of
maturity to this account. Therefore the investor
chooses the time of exchange by his own.
Your benefits
A foreign currency bond is optimal for you, if you want
to invest your capital in a currency other than Euro for
a specified period of time. In return for tying up your
capital for that period, you receive an attractivecoupon. Redemption is at 100% at the end of maturity
and is in foreign currency. You can benefit from an
appreciating foreign currency vis--vis the Euro.
Portfolios tend to contain foreign currency bonds for
reasons of diversification, among other things.
Your advantages
You receive an attractive rate of return over the
entire life of the bond. The payment date of the
coupon is fixed. You may benefit from an appreciating foreign
exchange rate relative to the Euro.
Details you should be aware
The 100% redemption in foreign currency is
limited to the end of maturity (default risk of
Erste Group Bank AG).
During the life of the bond, price fluctuations
may occur, and selling prior to maturity may
result in a loss.
The Euro investor bears the currency risk, since
the bond is traded in foreign currency.
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How do foreign currencybonds react to
rising interest rates?
The price of foreign currency bonds with fixed-rate
coupons falls when the foreign currency interest ratesare rising. This means, if the interest rate of the
country in which the bond is quoted rises, the price of
the foreign currency bond falls. Selling the foreign
currency bond prior to maturity may result in a loss.
Foreign currency bonds with variable coupons, on the
other hand, benefit from rising interest rates, since the
interest rate of these bonds (floaters) is frequently
adjusted to the referential interest rate of the foreign
currency. The price tends to hover around 100%, if the
default risk of the issuer remains the same.
stable interest rates?
If the interest rates of the foreign currency are stable
on the market, the price of the foreign currency bond
remains stable as well (ceteris paribus).
falling interest rates?
The price of foreign currency bonds with fixed-ratecoupons rises when interest rates are generally falling.
Selling the foreign currency bond prior to maturity may
result in a profit. Foreign currency bonds with variable
coupons, on the other hand, are negatively affected by
falling interest rates, since the interest rate of these
bonds (floaters) is frequently adjusted to the referenti-
al interest rate of the foreign currency. The price tends
to hover around 100%, if the default risk of the issuer
remains the same.
The coupons as well as the redemption is done in the
foreign currency, therefore you face chances and risks
because of the development of the currency.
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Index certificates
What are index certificates?
With an index certificate, you can directly benefit from
the development of the underlying instrument. It allows
you to diversify the risk, because you do not invest
in one specific security, but in an index such as forexample the ATX. This way your investment is not in-
fluenced by the fluctuations in one security, but by the
combined development of all the securities contained
in the index.
The losses of one group of shares may be offset by
the gains in another group in the index. Your overall
risk is therefore lower if you hold an index certificate
than if you hold specific shares. Index certificates
may be issued on performance indices as well as on
price indices.
How do index certificateswork?
Index certificates are issued at a certain exchange
ratio relative to the underlying instrument. Most often
they are traded at 1:100 or 1:10 to the index. Thismeans that if for example the ATX is at 3,700 points,
one index certificate with an exchange ratio of 1:100
to the ATX costs EUR 37. Incidentally, index certifi-
cates are a cost-efficient form of investment in that
they come with no load or management fee.
Your benefits
If you are convinced of future price rises of an index,
index certificates are a cost-efficient way of investing
in the underlying instrument. The certificate reflectsthe price movements of the underlying index 1:1.
Issuers basically charge no load or management fee
on index certificates.
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How do index certificatesreact to
rising markets?
Rising markets mean proportionately rising index
certificates. If the ATX increases for example from4,000 to 4,400 points, i.e. by 10%, the value of
the index certificate will also rise by 10% from
EUR 40 to 44 (in the case of an exchange ratio of
1:100).
stable markets?
If the index does not move, the index certificate will
not move either.
falling markets?
Falling markets mean proportionately falling index
certificates. If the ATX declines for example from
4,000 to 3,600 points, i.e. by 10%, the value ofthe index certificate will also decline by 10% from
EUR 40 to 36.
Your advantages
You benefit directly from the development of
the underlying instrument. This means that in
case of a rising market, your potential gains
are not capped. Index certificates are a cost-efficient form of
investment.
They are an easy way for you to diversify the risk.
Details you should be aware of
Falling markets translate into losses for index
certificates.
An index certificate can never outperform the
underlying instrument.
Redemption depends on the solvency of
Erste Group Bank AG (default risk).
Portfoliooptimisation
Payoff chart
Profit
Loss
0
Index certificate Uderlying instrument
Line
arpar
ticip
atio
n
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Bonus certificates
What are bonus certificates?
Bonus certificates combine three advantages in one
product. The investor benefits from rising prices of the
underlying instrument, receives a sizeable bonus
payment, and, in the case of falling prices, is protect-ed up to (or in fact, down to) the safety barrier. In case
of an unexpected slump, the bonus payment is
dropped, and the price of the underlying instrument is
credited at the end of maturity.
How do bonuscertificates work?
The bonus level, which determines the bonus pay-
ment, is set above the current price of the underlying
instrument at the issue of the certificate. The barrieris set below the initial value. If the specific certificate
comes with a cap as well, it is set at or above the
bonus level.
The redemption at the end of maturity hinges on the
development of the underlying instrument.
The following two cases can occur:
If the underlying instrument does not fall to or below
the barrier, the investor receives at least the bonus
level payment. If the price of the underlying instrument
is higher than the bonus level on the reference date,
the investor receives the higher payment of the two.
The cap, if any, determines the maximum payout.
If the underlying instrument does fall to or below the
barrier at least once during the term of the certificate,
there will be no bonus payment. The investor gets the
performance of the underlying instrument paid out at
the end of maturity (limited by the cap, if any). Depend-
ing on whether the price of the underlying instrument
is below or above the issue price, the investor suffers
a loss or makes a profit.
Your benefitsWith bonus certificates you have the chance to earn
an attractive return even if the price of the underlying
instrument has not moved or has in fact fallen, as long
as the price of the underlying instrument has not fallen
to or below the barrier. This means that bonus certifi-
cates also bring a little more safety to your portfolio.
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How do bonuscertificates react to
rising markets?
In rising markets, the investor receives the bonus
payment at the end of maturity. If the certificate is not
capped, you participate directly from the development
of the underlying instrument once the price of the
underlying instrument is above the bonus level.
stable markets?
In stable markets, the investor receives the bonus
payment (sideways yield) at the end of maturity.
falling markets?
In falling markets, the investor receives the bonus
payment at the end of maturity as long as the price of
the underlying instrument has not fallen to or below
the barrier. On the other hand, if that has happened,
there is no bonus payment, and the certificate follows
the performance of the underlying instrument until the
end of maturity (i.e. losses are possible)
Your advantages
Your receive an attractive bonus payment at
the end of maturity even in the case of stable
or falling prices as long as the price of the
underlying instrument has not fallen to or below
the barrier (sideways yield).
The barrier offers partial protection to falling
prices (risk buffer).
Details you should be aware of
The return may be capped.
If the price of the underlying instrument falls to
or below the barrier, losses are possible.
Between issue date and maturity, price fluctua-
tions are possible, which means that the sale
of the bonus certificates prior to maturity mayresult in a loss.
Capital redemption depends on the solvency
of Erste Group Bank AG (default risk).
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Payoff chart
Profit
Loss
0
Bonus certificate Underlying instrument
Unlimited profit
Capped profit potential
Bonus payment (risk buffer)
Value of the underlying
instrument at issue date
Barrier
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Reverse convertible bonds
What are reverse convertiblebonds?
Reverse convertible bonds are debentures with a very
attractive interest rate. Given that the bond is linked to
a share (underlying), coupons are substantially abovemarket rates. In return for the high coupon, the
investor also bears the risk associated with the share:
at the end of maturity, the redemption of the reverse
convertible bond is based on the price of the under-
lying instrument.
In addition to reverse convertible bonds with one
underlying instrument, there are also reverse convert-
ible bonds with more shares as underlying instruments.
These multi-cash or multi-reverse convertible bonds
tend to pay a higher coupon.
How do reverse convertiblebonds work?
With a reverse convertible bond, the investor buys
a bond that is linked to the price development of a
share. As in the case of a normal bond, a coupon is
paid annually, but because it is linked to a share, the
coupon of a reverse convertible bond is substantially
higher than the market yield. The redemption of the
reverse convertible bond hinges on the performance
of the share. If at the end of maturity the market price
of the underlying instrument is above the strike price
fixed at the beginning of the term, the reverse convert-
ible bond is redeemed at its nominal value plus
coupon. If the share price is below the initial value, the
investor receives a physical delivery of the share plus
the payment of the coupon. The number of shares to
be delivered per nominal value is set at the beginning
of the term.
In case of a multi-reverse convertible bond, which has
more than one underlying share, redemption is based
on the share with the worst performance as at matu-
rity. Regardless of the nature of redemption, a fixed
coupon is paid out in this case too.
Your benefits
Investors who do not expect any strong movements
in a share can receive a high, fixed coupon when
investing in a reverse convertible bond. In return, the
upward potential is limited to the value of the coupon.This form of investment is highly interesting in an
environment of attractively valued equity markets.
Your advantages
You get a high, fixed coupon that is above
the market interest rate
Reverse convertible bonds tend to have
short maturities.
The fixed coupon offers you a risk buffer.
Details you should be aware of
The potential return is limited to the coupon.
Between issue date and maturity, price fluctua-
tions are possible, which means that the sale of
the reverse convertible bonds prior to maturity
may result in a loss.
In case of redemption by physical delivery of
shares, you may incur losses.
Capital redemption depends on the solvency
of Erste Group Bank AG (default risk).
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How do reverse convertiblebonds react to
rising markets?
If the price of the underlying share rises, the price of
the bond rises as well because the redemption ofthe nominal value is becoming more likely.
stable markets?In stable markets, the investor benefits from the
fixed coupon and the redemption at nominal value at
the end of maturity. The stable price has very little
influence on the value of the bond, but the value of the
certificate rises as the remaining period to maturity
shortens.
falling markets?If the price of the underlying share falls, the price of
the bond falls as well because the redemption of thenominal value by means of physical delivery of the
share is becoming more likely. The fixed coupon is
paid out in any case.
24
25
Portfoliooptimisation
Payoff chart
Profit
Loss
0
Reverse convertible bond Underlying instrument
Initial value (strike)
Maximum yield (coupon)
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Protect bonds
What are Protect bonds?
With a Protect bond, you benefit from a fixed, attractive
rate of return above the current market level. The fixed
rate is independent of the performance of the underly-
ing instrument, which may be a share or an index.
Price declines of the underlying instrument are not
taken into account as long as the price does not hit or
fall below the barrier. This means that as investor, you
receive a positive return even in cases of moderately
falling prices. However, should the price of the underly-
ing instrument fall to or below the defined barrier,
redemption would be in accordance with the perfor-
mance of the underlying (at a maximum of 100%).
How do Protect bonds work?
With a Protect bond, you achieve positive returns in
rising and moderately falling markets. Redemption is at
par value at the end of maturity and depends on the
performance of the underlying instrument (index or
share).
If at the end of maturity the underlying is traded above
the barrier and the price has not fallen to or below the
barrier at any point in time during the life of the underly-
ing, redemption is at 100% of the invested capital at
the end of maturity.
If during the observation period the price has fallen to
or below the barrier at least once (even on an intraday
basis, irrespective of the closing price), redemption
depends on the performance of the underlying. In this
case the Protect bond is treated like a direct investment
in the underlying instrument, and the investors incurs
the according losses, if any.
If the price falls to or below the barrier and the underly-
ing is still traded above 100% at the end of maturity,
this positive performance is not taken into account, and
redemption is still at 100%.
The fixed rate of return does not depend on the perfor-
mance of the underlying and is paid out in any case.
Your benefits
A Protect bond is optimal for you if you believe that the
underlying value will basically increase but if at the
same time you envisage price fluctuations. Losses up
to (or in fact, down to) the barrier are not taken into
account at redemption.
Therefore you benefit from price movements both ways
and enjoy a higher degree of safety (prior to hitting the
barrier) than in case of a direct investment in the
underlying asset. On top of that you receive a fixed,
attractive rate of return regardless of the performance
of the underlying.
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Your advantages
You receive a fixed, attractive rate of return
above the market level.
You can benefit from both rising and falling
prices. You are safe knowing that at the end of maturity
the Protect bond will never be worth less than
the underlying.
Your investment is shielded by a risk buffer.
Details you should be aware of
During the life of the bond, price fluctuations
may occur, and selling prior to maturity may
result in a loss.
The risk buffer is limited by the barrier. Once the
price of the underlying falls to or below the
barrier (at least once, also on an intraday basis,
irrespective of the closing price) the safety
buffer is gone and you may incur a loss.
The return of Protect bonds is capped even if
the underlying achieves a better performance.
There is no capital guarantee and investors bear
the default risk of Erste Group Bank AG.
How do Protect bonds reactto
rising markets?If the price of the underlying asset rises (and has not
previously fallen to or below the barrier), the bond isredeemed at 100% and the fixed, attractive rate of
return is paid out.
stable markets?
If the price of the underlying instrument does not
change (and has not previously fallen to or below the
barrier), the bond is redeemed at 100% and the fixed,
attractive rate of return is paid out.
falling markets?
If during the life of the bond the price of the underlying
instrument falls to a value above the barrier, the bond
is redeemed at 100% and the fixed, attractive rate ofreturn is paid out.
If during the life of the bond the price of the underlying
instrument falls to or below the barrier the bond turns
into a direct investment, and losses are possible.
The fixed, attractive rate of return will still be paid out
regardless of the performance of the underlying
instrument.
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Portfoliooptimisation
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Discount certificates
What are discountcertificates?
Discount certificate are debentures through which the
investor acquires an underlying instrument at a
discount to the direct investment. At the beginning ofthe term a cap is set which limits the potential return.
At the end of maturity the current price of the underly-
ing instrument is paid out, with the cap representing
the upper limit of the payout.
This is the advantage of discount certificates since
the buyer of a discount certificate buys the share at a
discount to its current price but gets the full share
price (limited by the cap) paid out at the end of
maturity, the investor can earn the so-called sideways
yield. Please keep in mind the respective exchange
ratio.
How do discount certificateswork?
The potential return from discount certificates is
capped. In return for this cap (and thus, for the
unlimited potential return), the investor gets to buy the
specific underlying instrument at a discount. This
means that you pay a lower price for the discount
certificate than you would pay for investing directly in
the underlying instrument. At the end of maturity the
current price of the underlying instrument is paid out
(while bearing in mind the exchange ratio), with the
cap representing the upper limit of the payout. The cap
is set at the beginning of the term, remains constant
over time, and marks the maximum return potential.
Your benefits
Discount certificates bring a little more safety to your
portfolio. The discount at the time of acquisition
means that you have a safety cushion and can make
attractive profits even if markets do not move. This isthe so-called sideways yield: the underlying instrument
has not moved, but you are still making a profit.
Your advantages
You may achieve a positive return at the end of
maturity even if the underlying instrument comes
out below the initial price (sideways yield).
The difference between the price of the under-
lying instrument and your initial acquisition price
serves as cushion against losses. Short maturities minimise your risk further and
allow you to change your investment strategy in
the medium term.
Details you should be aware of
With discount certificates, your potential return
is capped.
If the underlying instrument falls, you may incur
losses.
Between issue date and maturity, price fluctua-
tions are possible, which means that the sale
of the discount certificates prior to maturity may
result in a loss.
Redemption depends on the solvency of
Erste Group Bank AG (default risk).
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How do discount certificates
react to rising markets?
In rising markets discount certificates tend to rise as
well, with the cap marking the maximum possible
return. This means that in the case of rising markets,
the discount certificate gradually approaches its cap.
stable markets?
In stable markets, discount certificates rise over the
course of time while approaching the end of maturity.
This happens because the discount of the certificate
decreases until the end of maturity, at which point the
price of the certificate equals the price of the under-lying instrument. This is a prime example of the
sideways yield.
falling markets?
In falling markets, the certificates fall as well. How-
ever, since the discount certificate was bought at a
discount to the underlying instrument, the loss is lower
by the amount of the discount than it would be for the
underlying instrument.
28
29
Portfoliooptimisation
Payoff chart
Profit
Loss
0
Discount certificate Underlying instrument
Maximum yield (cap)
Dis
coun
t(riskbu
ffer)
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Express certificates
What are express certificates?
Express certificates offer the chance of high coupon
payments at reduced levels of risk. Even minor in-
creases or sideways movements in the price of the
underlying instrument trigger attractive return ratesthat exceed the market interest rate substantially.
On top of that the safety cushion that is part of the
structure offers partial protection against losses.
Express certificates tend to come with maturities of
one to four years.
How do express certificateswork?
Express certificates combine the chance of an
attractive yield on the redemption prior to totalmaturity with the protection provided by an integrated
safety cushion. The size of the redemption depends on
the development of the underlying instrument (share,
commodity, index).At the beginning of term, the initial value is set. Every
year on the reference date, this value is compared
with the current price of the underlying instrument. If
the price is at or above the value set initially, the
nominal value plus the fixed coupon is automatically
redeemed. If the price is below the initial value, the
term of the certificate is automatically extended by
one year.
The same procedure happens in the second year. If
the current price of the underlying instrument now
exceeds the initial value, the investor receives the
redemption in the form of the nominal value plus twice
the fixed coupon. Otherwise the term of the certificate
is extended by another year, and the investor has the
chance of receiving a triple coupon at the end of the
third year.
If the underlying instrument is also quoted below the
initial value at the end of the third year, but if it is
above the barrier, the certificate is redeemed at its
nominal value. The investor has not incurred anylosses in this case. It is only when the price falls
below the barrier that the investor incurs a loss. In this
case the redemption equals the actual development of
the underlying instrument.
Beginning of term
Initial value set
First reference day
Underlying instrument closes at orabove the initial value
Second reference day
Underlying instrument closes at orabove the initial value
Last reference day (n years)
Underlying instrument closes at orabove the initial value
Underlying instrument closes at orabove the barrier
Redemption at price of theunderlying instrument
Redemption of face value
100% plus 1 coupon
Redemption of face value
100% plus 2 coupons
Redemption of face value
100% plus 3 coupons
Redemption of face value
at 100%
Yes
Yes
Yes
Yes
No
No
No
No
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30
31
Your benefits
Express certificates bring a little more safety and high
return opportunities to your portfolio. You can earn
attractive rates of return that substantially outperform
the market interest rate even if the price of theunderlying instrument rises only marginally or actually
moves sideways. The integrated safety buffer partially
protects your invested capital from losses.
How do express certificatesreact to
rising markets?
If the price of the underlying instrument rises, so does
the value of the certificate, since the redemption onthe reference day becomes more likely. On the refer-
ence day, the investor receives the fixed coupon and
the redemption at nominal value.
stable markets?
In stable markets the express certificate keeps a
constant value as well. If the price of the underlying
instrument on the reference day of comparison is
equal to or slightly above the initial value, the fixed
coupon and the redemption at nominal value is paid
out to the investor.
falling markets?In falling markets the value of the express certificate
falls as well. If the price of the underlying instrument
is below the initial value on the reference day of
comparison, the term of the certificate gets extended
by one year. If at the end of maturity the price of the
underlying instrument is again below the initial value
but above the barrier, the certificate is redeemed
without a loss at nominal value. However, if the price
of the underlying instrument is below the barrier at the
end of maturity, the value of the underlying instrument
is credited in the investors favour.
Your advantages
You have the chance to earn high coupon
payments.
The barrier protects your partially from losses.
Maturities tend to be short to medium-term.
Details you should be aware of
Losses may be incurred if the price of the under-
lying instrument falls to or below the barrier.
The barrier protects your capital only partially.
Between issue date and maturity, price
fluctuations are possible, which means that the
sale of the express certificates prior to maturity
may result in a loss.
Redemption depends on the solvency of
Erste Group Bank AG (default risk).
Portfoliooptimisation
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Turbo certificates
What are turbo certificates?
Turbo certificates allow you to benefit from market
fluctuations in both ways. Turbo long certificates benefit
from rising prices, turbo short certificates from falling
ones. Every incremental movement in the price of theunderlying instrument may lead to disproportionately high
returns due to the leverage effect. However, while the
unlimited upward potential is the upside of this particular
certificate, the risk of losing the entire capital invested
if the set barrier has been broken is its downside. In the
case of turbo long certificates the barrier is set below the
current price of the underlying instrument. Turbo short
certificates will have the barrier set above the current
price of the underlying instrument. Turbo certificates can
come with and without expiry date.
How do turbo certificateswork?
Turbo certificates offer the investor the chance to benefit
from price fluctuations of the underlying instrument at
a disproportionately high degree (leverage effect). If the
price of the underlying instrument rises, the price of
the turbo long certificate rises, and if the price of the
underlying instrument falls, the price of the turbo short
certificate rises according to the chosen leverage at a
disproportionate level. However, turbo certificates come
with the disadvantage that they become worthless, or
only a residual value may be paid out to the holder, oncethe price of the underlying instrument has reached a bar-
rier (or knockout threshold) set in advance.
The leverage effect results from the lower purchase price
of a turbo certificate relative to the direct investment
in the underlying instrument. The lower the purchase
price of the turbo certificate, the bigger the leverage. In
contrast to warrants, volatility has little or no influence on
how the price development of the underlying instruments
is reflected.
Turbo certificates have a strike (base) price and a
barrier.The intrinsic value of the turbo certificate isthe difference between the share price and the strike
price (turbo long certificate) or the difference between
the strike price and the share price (turbo short
certificate), respectively.
Your benefits
Turbo certificates are the ideal instruments for active,
market-oriented investors to benefit from short-term
market fluctuations with a leverage effect. There is a
vast array of cer tificates available both for rising (turbolong) and for falling (turbo short) prices. The turbo short
certificate is therefore one of the few instruments on the
equity market that gives you the chance to benefit from
falling markets.
Your advantages
Your return potential is disproportionately high
due to low capital investment and the leverage
effect.
You can participate in rising and falling markets. The influence of time value and volatility is
very low.
Details you should be aware of
You may lose your entire investment.
The leverage effect may cause disproportion-
ately high losses
Redemption depends on the solvency of
Erste Group Bank AG (default risk).
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How do turbo certificatesreact to
rising markets?
In rising markets the price of turbo long certificates
rises, and the price of turbo short certificate falls ata disproportionately high level in accordance with the
leverage chosen.
stable markets?
In stable markets, the price of turbo certificates is
influenced by the financing costs. They fall over time
for turbo long certificates, which means that you may
incur losses, whereas the opposite, i.e. possible gains
due to rising financing costs, is the case for turbo
short cer tificates.
falling markets?
In falling markets the price of turbo long certificatesfalls, and the price of turbo short certificates rises at
a disproportionately high level in accordance with the
leverage chosen.
32
33
Leverage
Payoff chart
Profit
Loss
0
Turbo long certificate Turbo short certificateUnderlying instrument
Barrier (knock-out)
Strike price
Potential residual value
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Warrants
What are warrants?
Warrants are securities that transfer the right (but not
the obligation) to the holder to buy or sell an underlying
instrument (for example, a share).
A call warrant gives you the right to buy the underlying
instrument at a later date for an agreed price (i.e. the
strike price).
A put warrant is just the opposite it gives you the
right to sell the underlying instrument at a later date for
an agreed price.
A warrant may be either exercised during the term
(American style) or at the end of it (European style).
Warrants may be traded on the stock exchange or over
the counter.
How do warrants work?
A call warrant gives you the right to buy the underlying
instrument at a later date for an agreed price. Of course
you will only want to exercise this right if the price of
the underlying instrument is higher than the strike price
(in the money). This way you could buy the underlying
instrument from the issuer at the strike price and sell it
on at the currently higher price on the stock exchange.
If the price of the underlying instrument is at (at the
money) or below (out of the money) the strike price,
it does not make sense to exercise the purchase right.In this case you would lose your invested capital.
The picture looks exactly the other way around for a put
warrant. Here you get the right to sell the underlying
instrument at a later date for an agreed price. You will
only want to exercise this right if the price of the under-
lying instrument is below the strike price
(in the money). In this case, you can buy the under-
lying instrument on the stock exchange and sell it to the
issuer at the higher strike price.
In practice, instead of the actual delivery of the under-
lying instrument the transaction tends to be settled in
cash by paying the difference between the price of the
underlying instrument on the day of exercise and the
strike price.
Warrants give the investor the chance to benefit at
disproportionately high rates from fluctuations in the
price of the underlying instrument. This leverage effect
is due to the relatively lower capital investment involved
in the purchase of a warrant in comparison with an
investment in the underlying instrument.
The price of a warrant is influenced by the following
variables during its term:
Price of the underlying instrumentThe current price of the underlying instrument and the
strike price set the intrinsic value of a warrant. The
intrinsic value of a call warrant is the positive differ-
ence between the price of the underlying instrument
and the strike price. For a put warrant, the intrinsic
value is defined as the positive difference between the
strike price and the price of the underlying instrument.
If the price of the underlying instrument rises/falls,
this movement will usually push up the price of thecall/put warrant.
Volatility
The volatility of the underlying instrument has a very
strong influence on the value of the warrant. Usually
an increase in volatility would also trigger an increase
in the value of the warrant, and vice versa.
Remaining time to maturity
The longer the remaining time to maturity of the
warrant, the better the chances of the underlying
instrument moving in the right direction for the war-
rant. With the remaining time to maturity shrinking, theso-called time value decreases as well, and equals zero
on the expiry date.
Risk-free market interest rate
The increase of the risk-free interest rate has a
positive effect on the value of a call warrant and a
negative one on the value of a put warrant.
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Your benefits
Warrants allow you to benefit from market movements
at disproportionately high rates. There is a vast array
of warrants available for rising (calls) and falling (puts)
prices. A put warrant is one of the few instruments onthe equity market that gives you the chance to benefit
from falling markets.
How do warrants react to
rising markets?If the price of the underlying instrument rises, and
all other variables remain equal, the value of the call
rises and the value of the put falls disproportionately.
stable markets?
If the price of the underlying instrument remains stable,
the value of the warrant tends to decrease due to the
falling time value.
falling markets?
If the price of the underlying instrument falls, and all
other variables remain equal, the value of the call falls
and the value of the put rises disproportionately.
Your advantages
You participate in the price movements of the
underlying instrument at disproportionately high
rates.
You can participate in rising and falling markets.
You can protect your portfolio against short-term
price declines.
Details you should be aware of
You may lose your entire investment
If you decide to exercise the right to buy or
sell the underlying instrument, you have to bear
in mind the fees and deadlines associated with
the transaction.
Redemption depends on the solvency of
Erste Group Bank AG (default risk).
34
35
Leverage
Payoff chart
Profit
Loss
0
Call Put Underlying instrument
Strike price
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Tax information for private individualssubject to taxation in Austria
Realised profits and income from bonds and structured
products bought from 1 April 2012 are subject to a tax
rate of 25%. The tax is withheld by the depositary bank
in Austria and will be withheld irrespective of the
holding period. For income from securities held outside
of Austria, the taxation is based on the individual tax
return.
For bonds and structured products, the period of
1 October 2011 to 31 March 2012 is also relevant.
Purchases within this period lead to the so-called
perpetuation of the speculative period. Profits realised
by sales from 1 April 2012 onwards are subject to
taxation on speculative gains (regardless of the holding
period), but at the reduced special tax rate of 25%,
which is applied within the framework of the individual
tax return.
From 1 April 2012 onwards, there will be no withhol-
ding tax credit or charge on accrued interest in case ofpurchases or sales between two coupon dates any-
more. However, in the case of buying before 1 April
2012 and selling from 1 April 2012 onwards, there
will be a pro-rata withholding tax credit (purchase) or
charge (sale), respectively.
The representation of the tax treatment of realized
profits on exchange and yields is based on the changes
by the Budgetbegleitgesetz 2011, the Abgabennde-
rungsgesetz 2011 and the Budgetbegleitgesetz 2012.
The entry into force of the new fiscal regulations is in
principle intended beyond that with 1.4.2012 (are
special entry into force regulations to consider alreadybefore).
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Contacts and information
Internet:
www.produkte.erstegroup.com
http://erstegroupbank.onvista.de
E-Mail: [email protected]
Telefon: +43 (0)5 0100 - 83200
Reuters:ERSTE02
Traded on the following stock exchanges:
Vienna stock exchange, Stuttgart stock exchange
Directbroker for Austria:www.brokerjet.at
www.direktanlage.at
www.flatex.at
Directbroker for Germany:
www.dab-bank.dewww.cortalconsors.de
www.comdirect.de
www.flatex.de
www.ingdiba.de
www.onvistabank.de
www.sbroker.de
OTC: yes
For general information about the Austrian
certificate market, please visit:
www.zertifikateforum.at
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37
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Notes
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This is a marketing publication. Our languages of communication are German
and English. This document is intended as source of additional information
for our investors and is based on the knowledge of the persons involved in its
preparation at the time of going to press. Our analyses and conclusions are of
a general nature and do not take into account the requirements of our investors
with regard to return, tax situation, or risk profile. Please note that the invest-
ment in securities implies risks along with the aforementioned oppor tunities.Information about previous performance does not guarantee future perfor-
mance. The full information (base prospectus, terms and conditions, customer
information with regard to the Austrian Securities Supervision Act [WAG] 2007)
relating to the products of Erste Group Bank AG is available for inspection at
the registered office of the issuer at Graben 21, 1010 Vienna, during regular
business hours.
These products are issued as continous issue and of fered to the public in
Austria and Germany. The exclusive legal basis of our products is the version of
the final terms and conditions as deposited with Commission de Surveillance du
Secteur Financier in Luxemburg that is accessible on the website of Erste Group
Bank AG (www.erstegroup.com). A base prospectus was prepared and approved
by the Commission de Surveillance du Secteur Financier (in accordance with
the regulations set forth in the Directive of the European Parliament and the
European Council 2003/71/EC and article 7, paragraph 4 of the Regulation of
the European Commission (EC) no. 809/2004). The base prospectus became
both the Austrian Financial market supervisory authority (FMA) and the German
Federal Institution for supervision of financial service (BAFIN) of the CSSF in ac-cordance with 8b of the Austrian capital market law and/or 17 exp. 3 of the
German security folder law notifies. The final terms are deposited with the CSSF.
The complete information (base prospectus, final terms and possible supple-
ments , WAG 2007 client information) for the product is available for inspection
at the registered office of the issuer at Graben 21, 1010 Vienna during regular
business hours. The information set forth in this publication is not binding. Only
the information given in the base prospectus (together with the final terms) is
binding in connection with the of fer of securities by the issuer. Please also take
note of the Austrian Securities Supervision Act (WAG) 2007 customer informa-
tion of your bank. The final terms are subject to Austrian right. Perhaps only a
limited contingent is available of this investment.
The financial product as well as the appropriate product documents may be
offered, sold, resold or supplied and/or published neither directly nor indi-
rectly natural and/or legal entities, who have their domicile/seat in the USA
(inclusively US-Person as in the regularization S under the Securities act
1933 idjgF defined).