Under the terms of the Swap Confirmation between the
Counterparty and the Company acting for and on behalf of the BNP
Paribas UK Enhanced Income cell, the Counterparty will pay to the
Company for the account of the UK Enhanced Income cell quarterly a
Sterling amount equal to 2.000% of the notional amount of the Swap
Confirmation, equivalent to 2.000 pence per UK 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 UK
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 UK 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 UK
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 UK Enhanced Income Preference Share.
US Enhanced Income - Class A
Under the terms of the Swap Confirmation between the
Counterparty and the Company acting for and on behalf of the US
Enhanced Income cell in respect of Class A, the Counterparty will
pay to the Company for the account of the US Enhanced Income cell
quarterly a Sterling amount equal to 2.000% of the notional amount
of the Swap Confirmation, equivalent to 2.000 pence per Class A
Sterling Hedged US 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 BNP Paribas US Enhanced Income Class
A 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 US 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 US 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 US
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)
US Enhanced Income - Class B
Under the terms of the Swap Confirmation between the
Counterparty and the Company acting for and on behalf of the US
Enhanced Income cell in respect of Class B, the Counterparty will
pay to the Company for the account of the US Enhanced Income cell
quarterly a US Dollar amount equal to 2.000% of the notional amount
of the Swap Confirmation, equivalent to 2.00 cents per Class B US
Dollar Unhedged US 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 cents per BNP Paribas US Enhanced Income Class
B 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 cents per Class B US
Dollar Unhedged US 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 cents per Class B
US Dollar Unhedged US 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 cents per Class B US Dollar Unhedged US
Enhanced Income Preference Share.
(i) Collateral Arrangements
Under the terms of credit support deeds entered into between the
Counterparty and the Company acting for and on behalf of each cell,
the Counterparty is required to post collateral in the form of AAA
rated G7 government bonds in favour of the Company acting for and
on behalf of each cell, such collateral being valued on a weekly
basis and, if the value of the collateral is less than the Credit
Support Amount (as set out in note 6(c) above), the Counterparty
will provide additional collateral to increase the aggregate value
to at least applicable Credit Support Amount. Where there is an
event of default in respect of the Counterparty under the swap
confirmation, the Company will be entitled to enforce its security
over the collateral.
The collateral is delivered to an escrow account, held by BNP
Paribas Securities Services as custodian, in favour of the
Company.
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)
(i) Collateral Arrangements (continued)
The collateral held against all derivative instruments as at 30
April 2012 is detailed below:
Cell Period ended Year ended
30 April 2012 31 October
2011
GBP GBP
UK HI - 10,112,173
EBM (2) - 6,284,675
Abs Pro 13,958,568 12,861,034
US HI 10,241,231 13,171,624
Agrinvest 9,895,705 10,830,717
EPR 9,590,059 10,422,194
EBM (3) 12,546,417 14,664,023
COMAC 2,735,050 2,720,430
US EI 39,169,192 39,297,838
UK EI 18,205,665 16,906,645
EI 11,865,901 12,561,977
-------------- -----------
(j) Finance Costs and Expenses
All payments by the Company are made in Sterling, except that
the Investment Manager's fees in respect of Class B of US High
Income and US Enhanced Income are paid in US Dollars.
As detailed in note 1 (b), all expenses are borne by BNP Paribas
SA and recognised in the Statement of Comprehensive Income.
Quarterly payments to the Company for the account of the US High
Income cell in respect of Class B are made in Sterling, except that
if the Company so elects by notice in writing to the Counterparty
specifying the portion of the derivative contract in respect of
which the Company wishes to receive payment in US Dollars, such
payment is paid in part, in US Dollars in an amount equal to the
product of (a) the number of Units so specified, (b) USD 1.00 and
(c) the underlying dividend rate (as explained further at note 6(h)
above) and (2) as to the balance in Sterling in an amount equal to
the product of (x) the remaining number of Units, (y) the Sterling
Amount which could be purchased with USD 1.00 at the applicable
Forward Rate and (z) the underlying dividend rate) as explained
further at note 6(h) above). Such election will be made to satisfy
elections from holders of Class B Unhedged US High Income
Preference Shares to receive their dividends in US Dollars.
Dividends paid by the Company to holders of Class B Unhedged US
High Income Preference Shares are paid in Sterling except that,
where holders of such shares have elected to receive their
dividends in US Dollars, such dividends will be paid in US Dollars
in an amount equal to (a) the number of Class B Unhedged US High
Income Preference Shares in respect of which such election is made,
(b) USD 1.00 and (c) the underlying dividend rate (as explained
further at note 6(h) above).
Payments to the Company for the account of the US Enhanced
Income cell in respect of Class B are made in US Dollars.
Dividends paid by the Company to holders of Class B US Dollar
Unhedged US Enhanced Income Preference Shares are paid in US
Dollars.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
7 RELATED PARTY TRANSACTIONS
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