(i) The notional amounts of the derivative instruments are as
follows:
BNP Paribas Absolute Progression GBP 76,748,923
US High Income Cell - Class A GBP 92,469,987
US High Income Cell - Class B USD 58,337,229
BNP Paribas Agrinvest GBP 47,225,896
Enhanced Property Recovery GBP 30,125,000
Energy - Base Metals (3) GBP 49,587,600
BNP Paribas COMAC GBP 25,526,009
US Enhanced Income - Class A GBP 48,500,080
US Enhanced Income - Class B USD 45,079,125
UK Enhanced Income GBP 49,015,722
Enhanced Income GBP 39,999,346
(ii) The maturity dates of the derivative instruments are as
follows:
BNP Paribas Absolute Progression 26 July 2012
US High Income Cell - Class A 19 November
2012
US High Income Cell - Class B 19 November
2012
BNP Paribas Agrinvest 22 June 2013
Enhanced Property Recovery 13 March 2014
Energy - Base Metals (3) 5 June 2014
BNP Paribas COMAC 8 June 2029
US Enhanced Income - Class A 16 July 2029
US Enhanced Income - Class B 16 July 2029
UK Enhanced Income 24 September
2029
Enhanced Income c. 30 April
2108*
*The maturity date of the Enhanced Income cell will be the
26(th) business day after the final ex dividend date. As the
business days in April 2108 cannot yet be determined, an
approximate date is disclosed.
(iii) Early Settlement Options relating to the derivative
contracts:
Each contract entered into between the Counterparty and the
Company acting for and on behalf of each cell has been entered into
upon terms which allow such contracts to be terminated, inter alia,
in the following circumstances:
(a) by the Company if the Counterparty fails to make a payment
under the relevant contract (subject to a grace period of three
local business days) or makes a representation which is incorrect
or misleading in any material respect or fails to comply with its
related obligations;
(b) (b) by the Counterparty if the Company fails to make a
payment it is required to pay under the relevant contract (subject
to the grace period mentioned above); and
(c) by either the Counterparty or the Company if the other party
is dissolved, becomes insolvent or is unable to pay its debts as
they become due or on the occurrence of an illegality or the
imposition on payments under the Contract of a withholding which
the Company or the Counterparty, as the case may be, is unable to
gross-up.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(g) Valuation (continued)
(iii) Early Settlement Options relating to the derivative
contracts (continued)
It is anticipated that, on early termination of a Contract, a
termination payment would become due to the Company equal to the
aggregate net asset value of the relevant Contract at the date of
such termination. The directors may reinvest such proceeds as they
see fit in investments which in the opinion of the directors
replicate as nearly as practicable the investment characteristics
of the contract so terminated and so that the proceeds are
invested, as nearly as practicable, in accordance with the
Company's stated investment objective for the relevant cell.
Even if recovered by the Company, any early redemption amount in
respect of the shares of the relevant cell may result in a lower
return than would have been the case if the contract had continued
and been performed up to its maturity date.
In the event that the directors determine that the investment
characteristics of the Contract cannot be replicated then the
directors will notify Shareholders of the relevant cell of such
circumstances, the relevant early redemption amount and the
relevant early redemption date.
If the Counterparty fails to top up the collateral such that it
is equal to at least the Specified Percentage (as set out in note
6(i) below) or other circumstances constituting an event of default
with respect to the Counterparty occur, the Company will be
entitled to enforce its security over the collateral as well as to
pursue any other remedies it may have against the Counterparty. In
such circumstances, the Company will re-invest the proceeds of
realisation of the collateral or distribute the same to
Shareholders.
(h) Periodic Returns on Principal and Timings of Payments
US High Income cell - Class A
Under the terms of the Swap Confirmation between the
Counterparty and the Company acting for and on behalf of the US
High Income cell in respect of Class A, the Counterparty pays to
the Company for the account of the US High Income cell quarterly a
Sterling amount equal to 1.875% of the notional amount of the Swap
Confirmation, equivalent to 1.875 pence per Class A Sterling Hedged
US High Income Preference Share, provided that if the underlying
portfolio net asset value reaches 110% of the initial underlying
portfolio net asset value (equivalent to a net asset value of 110
pence per share), future payments will increase to 2.0625% of the
notional amount of the Swap Confirmation, equivalent to 2.0625
pence per Class A Sterling Hedged US High Income Preference Share.
For each subsequent 5 per cent increase in the underlying portfolio
net asset value, subsequent quarterly payments will increase by
0.09375%, equivalent to 0.09375 pence per Class A Sterling Hedged
US High Income Preference Share.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(h) Periodic Returns on Principal and Timings of Payments (continued)
US High Income cell - Class B
Under the terms of the Swap Confirmation between the
Counterparty and the Company acting for and on behalf of the US
High Income cell in respect of Class B, the Counterparty pays to
the Company for the account of the US High Income cell quarterly
the Sterling equivalent of an amount equal to 1.875% of the
notional amount of the Swap Confirmation, equivalent to 1.875 cents
per Class B Unhedged US High Income Preference Share, provided that
if the underlying portfolio net asset value reaches 110% of the
initial underlying portfolio net asset value (equivalent to a net
asset value of 110 cents per share), future payments will increase
to 2.0625% of the notional amount of the Swap Confirmation,
equivalent to 2.0625 cents per Class B Unhedged US High Income
Preference Share. For each subsequent 5 per cent increase in the
underlying portfolio net asset value, subsequent quarterly payments
will increase by 0.09375%, equivalent to 0.09375 cents per Class B
Unhedged US High Income Preference Share. Where holders of Class B
Unhedged US High Income Preference Shares have elected to receive
their quarterly dividends in US Dollars, the Counterparty pays at
the request of the Company in US Dollars such proportion of the
quarterly payment as is required to enable the Company to finance
the quarterly dividends payable in US Dollars and the balance in
Sterling.
Enhanced Income
Under the terms of the Swap Confirmation between the
Counterparty and the Company acting for and on behalf of the
Enhanced Income cell, the Counterparty will pay to the Company for
the account of the Enhanced Income cell quarterly a Sterling amount
equal to 2.00% of the notional amount of the Swap Confirmation,
equivalent to 2.00 pence per Class A Sterling Hedged Enhanced
Income Preference Share, provided that if the underlying portfolio
net asset value reaches 110% of the initial underlying portfolio
net asset value (equivalent to a net asset value of 110 pence per
share), future payments will increase to 2.200% of the notional
amount of the Swap Confirmation, equivalent to 2.200 pence per
Class A Sterling Hedged Enhanced Income Preference Share. For each
subsequent 5 per cent increase in the underlying portfolio net
asset value, subsequent quarterly payments will increase by 0.1%,
equivalent to 0.1 pence per Class A Sterling Hedged Enhanced Income
Preference Share.
Where the underlying portfolio net asset value subsequently
decreases after having increased to 110% or more of the initial
underlying portfolio net asset value, but has not decreased to less
than 100% of the initial underlying portfolio net asset value,
subsequent quarterly payments will reduce to 2.00 pence per Class A
Sterling Hedged Enhanced Income Preference Share. If the underlying
portfolio net asset value has fallen below 100 per cent. and below
a lower percentage which is an integral multiple of 5 per cent.
i.e. 95%, 90%, 85% (down to 5%) of the initial underlying portfolio
net asset value, subsequent dividend payments will be adjusted to
be the product of 2.00% and the relevant percentage threshold level
and 100 pence per Class A Sterling Hedged Enhanced Income
Preference Share.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(h) Periodic Returns on Principal and Timings of Payments (continued)
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