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Friday 29 August, 2014

Harewood Struct Inv

Half Yearly Report

RNS Number : 2865Q
Harewood Structured Investment PCC
29 August 2014
 



 

 

 

 

 

 

 

Harewood Structured Investment PCC Limited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half-yearly Financial Report for the

period ended 30 April 2014 (Unaudited)

 

 


Early Redemption

3

 

About the Company

 

 

4 - 10

Investment Objective and Policy

 

11 - 14

Net Asset Values

 

15

Interim Management Report

 

16 - 17

Investment Manager's Report

 

18 - 22

Statement of Comprehensive Income

 

23

Statement of Financial Position

 

24

Statement of Changes in Net Assets Attributable to Holders of Shares

 

25

Statement of Cash Flows

 

26

Notes to the Financial Statements

 

27 - 48

Schedule of Investments

 

49 - 50

Directors and Service Providers

 

51

Shareholder Information

52

 


 

The Board received a request from a majority shareholder to propose the early redemption of the preference shares in all the existing cells as at the date of signing, being Enhanced Income Cell, UK Enhanced Income Cell, US Enhanced Income Cell - Class A and US Enhanced Income Cell - Class B. 

 

On 9 July 2014, the Board considered the proposal and resolved to contact shareholders setting out the proposal for early redemption.  On 6 August 2014 letters had been sent out to all shareholders detailing the proposal and seeking their written consent. The shareholders have been advised in the letter that the majority shareholder who holds more than 75% of the shares in each cell intends to approve the proposed early redemption and as such is sufficient to approve the proposal.

 

On 15 August 2014 the Company received the written consent of the majority shareholder in each of the existing cells. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of all the existing cells. The redemption dates of all cells have therefore been brought forward to 15 September 2014.

           


 

Harewood Structured Investment PCC Limited (the "Company"), is a Guernsey incorporated, closed-ended protected cell investment company.  Upon incorporation, two Ordinary Shares (also referred to as "Management Shares") were issued for administrative purposes.  The Company commenced business on 18 March 2005 when preference shares in its first cell were allotted and issued.

 

On 7 December 2005, 46,613,549 BNP Paribas UK High Income Preference Shares ("UKHI Shares") of the BNP Paribas UK High Income cell (the "UKHI Cell") were allotted and issued at a price of £1.00 each.  On 26 May 2006, a further 30,000,000 UKHI Shares were allotted and issued at a price of 102.47 pence each and a further allotment and issue of 50,000,000 shares was made on 28 September 2006 at a price of 104.00 pence each.  On 4 June 2007, a further 15,000,000 UKHI Shares were allotted and issued at a price of 109.60 pence each.  The UKHI Shares had a defined investment life to 8 December 2011, whereupon they were compulsorily redeemed.

 

On 22 March 2006, 27,506,140 BNP Paribas Energy - Base Metals (2) Preference Shares ("EBM2 Shares") of the BNP Paribas Energy - Base Metals (2) cell (the "EBM2 Cell") were allotted and issued at a price of £1.00 each.  On 6 July 2006, a further 5,000,000 EBM2 Shares were allotted and issued at a price of 110.44 pence each.  The EBM2 Shares had a defined investment life to 28 March 2012, whereupon they were compulsorily redeemed.

 

On 20 April 2006, 25,000,000 BNP Paribas European Shield Preference Shares ("ES Shares") of the BNP Paribas European Shield cell (the "ES Cell") were allotted and issued at a price of £1.00 each.  The ES Shares had a defined investment life to 3 May 2012, whereupon they were compulsorily redeemed.

 

On 19 July 2006, 61,748,923 BNP Paribas Absolute Progression Preference Shares ("AP Shares") of the BNP Paribas Absolute Progression cell (the "AP Cell") were allotted and issued at a price of £1.00 each.  On 23 January 2007, a further 15,000,000 AP Shares were allotted and issued at a price of 108.484 pence each.  The AP Shares had a defined investment life to 26 July 2012, whereupon they were compulsorily redeemed.

 

 


 

On 25 October 2006, 77,469,987 Class A Sterling Hedged US High Income Preference Shares ("Class A USHI Shares") of the US High Income cell (the "USHI Cell") were allotted and issued at a price of £1.00 each.  On 4 June 2007, a further 15,000,000 Class A USHI


Shares were allotted and issued at an issue price of 105.65 pence each.  The Class A USHI Shares had a defined investment life to 26 November 2012, whereupon they were compulsorily redeemed.

 

On 25 October 2006, 43,337,229 Class B Unhedged US High Income Preference Shares ("Class B USHI Shares") of the USHI Cell were allotted and issued at a price of $1.00 each.  On 4 June 2007, a further 15,000,000 Class B USHI Shares were allotted and issued at a price of 105.89 cents each.  The Class B USHI Shares have a defined investment life to 26 November 2012 whereupon they were compulsorily redeemed.

 

On 21 June 2007, 37,225,896 BNP Paribas Agrinvest Preference Shares ("Agrinvest shares") of the BNP Paribas Agrinvest cell (the "Agrinvest Cell") were allotted and issued at a price of £1.00 each.  On 15 February 2008, a further 10,000,000 Agrinvest Shares were allotted and issued at a price of 127.41 pence. The Agrinvest Shares had a defined investment life to 29 June 2013, whereupon they were compulsorily redeemed.

 

On 12 March 2008, 30,125,000 Enhanced Property Recovery Preference Shares (the "EPR Shares") of the Enhanced Property Recovery cell (the "EPR Cell") were allotted and issued at a price of £1.00 each.  The EPR Shares had a defined investment life to 20 March 2014, whereupon they were compulsory redeemed.

 

On 4 June 2008, 34,587,600 Energy - Base Metals (3) Preference Shares ("EBM3 Shares") of the Energy - Base Metals (3) cell (the "EBM3 Cell") were allotted and issued at a price of £1.00 each.  On 5 September 2008, a further 15,000,000 EBM3 Shares were allotted and issued at a price of 100.03 pence each.  The EBM3 Shares had a defined investment life to 12 June 2014, whereupon they were compulsory redeemed.

 

On 18 March 2009, 24,999,346 Class A Sterling Hedged Enhanced Income Preference Shares ("Class A EIF Shares") of the Enhanced Income cell (the "EI Cell") were allotted and issued at a price of £1.00 each.  On 8 October 2009, a further 15,000,000 Class A EIF Shares were allotted and issued at a price of 117.86 pence each.

The Class A EIF Shares had a defined investment life to 19 March 2108, whereupon they would have been subject to compulsory redemption on or around 10 May 2108.However on 15 August 2014 the requisite majority of shareholders of the EI Cell approved a change to the maturity date, bringing it forward to 15 September 2014. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of the EI Cell and to redeem all Class A EIF Shares on 15 September 2014.

 

On 29 May 2009, 25,526,009 Class A Sterling Hedged COMAC Preference Shares ("COMAC Shares") of the BNP Paribas COMAC cell (the "COMAC Cell") were allotted and issued at a price of £1.00 each.  Whilst at the time of issue the COMAC Shares had a defined investment life to 1 June 2029, it was agreed by the Board of directors on 14 May 2013 that it was no longer in the best interests of the Company or the holders of COMAC Shares to continue to pursue the stated investment objective for the COMAC Cell.  On 11 June 2013 a Written Special Resolution was passed by the sole member of the Company to effect the termination of the COMAC Cell and to redeem all COMAC Shares on 2 July 2013.

 

On 14 July 2009, 25,079,125 Class B Unhedged US Enhanced Income Preference Shares ("Class B USEI Shares") of the USEI Cell were allotted and issued at an issue price of $1 each.  On 8 October 2009 a further 20,000,000 Class B USEI Shares were allotted and issued at an issue price of 109.64 cents each.  The Class B USEI Shares had a defined investment life to 16 July 2029 whereupon they would have been subject to compulsory redemption on or around 1 September 2029. However on 15 August 2014 the requisite majority of shareholders of the USEI Cell approved a change to the maturity date, bringing it forward to 15 September 2014. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of the USEI Cell and to redeem all Class B USEI Shares on 15 September 2014.

 

On 15 July 2009, 48,500,080 Class A Sterling Hedged US Enhanced Income Preference Shares ("Class A USEI Shares") of the US Enhanced Income cell (the "USEI Cell") were allotted and issued at a price of £1.00 each.  The Class A USEI Shares had a defined investment life to 16 July 2029, whereupon they would have been subject to compulsory redemption on or around 1 September 2029*. However on 15 August 2014 the requisite majority of shareholders of the USEI Cell approved a change to the maturity date, bringing it forward to 15 September 2014. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of the USEI Cell and to redeem all Class A USEI Shares on 15 September 2014.

 

On 23 September 2009, 49,015,722 UK Enhanced Income Preference Shares ("UKEI Shares") of the UK Enhanced Income cell (the "UKEI Cell") were allotted and issued at an issue price of £1.00 each.  The UKEI Shares had a defined investment life to 24 September 2029 whereupon they would have been subject to compulsory redemption on or around 8 November 2029. However on 15 August 2014 the requisite majority of shareholders of the UKEI Cell approved a change to the maturity date, bringing it forward to 15 September 2014. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of the UKEI Cell and to redeem all UKEI Shares on 15 September 2014.

 

The Company has an unlimited life but the shares of each cell have a defined investment term as set out above.  Holders of the Ordinary Shares have the right to receive notice of and to vote at all meetings of shareholders.

 

All shares in issue are listed on the Channel Islands Securities Exchange Authority Limited (the "CISE") with the exception of the two Management Shares in issue which are not listed.

 

The Company is managed by its Board of directors who have appointed THEAM of Paris, France as the Company's external Investment Manager of all existing cells.  Administrative and Secretarial support is provided by JTC (Guernsey) Limited (formerly JTC Fund Managers (Guernsey) Limited and prior to that Anson Fund Managers Limited) in Guernsey.  BNP Paribas SA acts as Distributor and Investment Counterparty of the Company's cells.

 

Directors and Principal Advisors

 

John Le Prevost - Non executive Director

John Le Prevost is British and resides in Guernsey. He is a director and controlling shareholder of Anson Group Limited, the holding company of Anson Registrars Limited, the Company's Registrar, Transfer Agent, Paying Agent and Receiving Agent.  Mr Le Prevost has over thirty years experience in the investment and offshore trust industry, during which time he was Managing Director of County NatWest Investment Management (Channel Islands), Royal Bank of Canada's mutual fund company in Guernsey and Republic National Bank of New York's international trust company.  He is a trustee of the Guernsey Sailing Trust, a director of a number of companies associated with Anson Group Limited's business and, in addition, serves as a non-executive director on the boards of many listed investment companies.

 

Francois-Xavier Foucault - Non executive Director

Francois-Xavier Foucault is French and resides in France.  As well as being a director of the Company, he is in charge of Commodity and Flow for the Strategy & Risk group within BNP Paribas Global Equities and Commodity Derivatives.  He is also director of DECART RE a reinsurance company of the BNPP Paribas group, and director of Theam Quant, an investment company of the BNPP Paribas Group.  Previously, he has also held roles in finance, derivatives and funds at Gen Re Securities, AXA Investment Managers and BFT (Credit Agricole).

 

Youri Siegel - Non executive Director

Youri Siegel is French and resides in the United Kingdom.  As well as being a director of the Company, he is currently the Head of Solutions Structuring within the Global Equities and Commodities Derivatives Department of BNP Paribas Arbitrage SNC, a 100% affiliate of BNP Paribas SA.  Mr Siegel has also held similar roles at Société Generale and JPMorgan.

 

Trevor Hunt - Non executive Director

Trevor Hunt is British and resides in Jersey. He has extensive experience in the offshore financial services sector.  Mr Hunt worked for HSBC for over 30 years in various senior management positions within the open-ended and closed-ended offshore funds industry.  Mr Hunt retired from HSBC in 2003 and spent six years as a director of Capita Financial Administrators (Jersey) Limited and of other Capita entities before leaving in 2009 to join BNP Paribas Securities Services in a senior management role.  On 30 September 2011 Mr Hunt left BNP Paribas in order to focus on providing non-executive directorship services to a number of Channel Island funds and fund management companies.  Mr Hunt is regulated by the Jersey Financial Services Commission and Guernsey Financial Services Commission for the provision of services as a non-executive director and is a member of the Jersey Association of Directors and Officers and serves on the Association of Investment Companies ("AIC") Offshore Funds Committee.

 
 
BNP Paribas SA - Investment Counterparty and Distributor

The Investment Counterparty and Distributor, in respect of all the cells of the Company, is BNP Paribas SA. The duty of the Investment Counterparty, in respect of each individual cell, is that of the issuer of debt securities or other financial instruments or the provider of a derivative contract or other financial instrument. The duties of the Distributor include, inter alia, the preparation of literature to promote the Company and relevant cell within the United Kingdom ("UK") and to ensure it complies with the applicable UK requirements and other applicable laws and regulatory requirements, promoting within the UK investment in the shares of the Company and researching, evaluating and identifying marketing opportunities for promoting investments in the shares of the Company.

 

BNP Paribas SA is a company in the BNP Paribas Group (the "Group").  As of 5 June 2014 the Group had an equity market capitalisation of €64 billion (source: Reuters).  The Group is a leading European provider of corporate and investment banking products and services and a leading provider of private banking and asset management products and services throughout the world.  It provides retail banking and financial services to over 20 million individual customers throughout the world, in particular in Europe and the western United States of America.

 

The Group has offices in more than 85 countries. 

 

At 31 December 2013, the Group had audited consolidated assets of €1,800.13 billion and audited shareholders' equity (Group share including income for the 2013 fiscal year) of €87.59 billion.  Audited net income, before taxes, non-recurring items and amortization of goodwill, for the year ended 31 December 2013 was €8.18 billion.  Audited net income, Group share, for the year ended 31 December 2013 was €5.44 billion.

 

THEAM - Investment Manager

 

The Investment Manager in respect of all cells of the Company is THEAM, a member of the BNP Paribas Group. As a result of a joint project between BNP Paribas CIB and BNP Paribas Investment Partners, combining the Sigma Teams from BNP Asset Management with Harewood Asset Management SAS, Harewood Asset Management SAS was renamed THEAM on 31 March 2011. The role of the Investment Manager includes, inter alia, the making of investment decisions on behalf of the Company in respect of the assets of the relevant cell and monitoring the investments which are attributable to that cell. The Investment Manager is organised as a French Société Actions Simplifiée, which is a form of limited liability company with simplified legal obligations. The purpose of the Investment Manager is the creation and management of investment funds on behalf of their investors. The Investment Manager may also provide investment advisory services. The Investment Manager is a wholly owned subsidiary of BNP Paribas Investment Partners. The Investment Manager is regulated by the Autorité des marchés financiers under French law.  As of 30 April 2014, THEAM was responsible for (or mandated for) the investment of €41.2 billion over more than 720 funds.

 

BNP Paribas Securities Services, Luxembourg Branch - Custodian

BNP Paribas Securities Services, Luxembourg Branch have been appointed by the Company as custodian of the assets of the Company. BNP Paribas Securities Services is a company in the BNP Paribas Group.  The Custodian will, amongst carrying out other duties, be responsible for holding assets for the Company and presenting the same for redemption and receiving the proceeds of such redemptions for and on behalf of the Company for the account of the relevant cell for onward payment to Shareholders upon applicable redemption. The Custodian also holds custody over the collateral accounts of each cell.

 

The Custodian is the Luxembourg Branch of BNP Paribas Securities Services, a fully licensed bank incorporated under French law as a société anonyme (public limited company).  BNP Paribas Securities Services, Luxembourg Branch was created on 28 March 2002 and registered with the Luxembourg Trade and Companies' register under the number of B86.862.  As a branch of a French bank, BNP Paribas Securities Services, Luxembourg Branch is supervised by the Comité des Etablissements de Crédit et des Enterprises d'Investissement (which depends on the French Central Bank, the Banque de France).  It has also been authorised by the Commission de Surveillance du Secteur Financier, the Luxembourg Commission for the Supervision of the Financial Sector to act as a credit institution under the terms of article 30 of the Luxembourg law of 5 April 1993 on the Financial Sector, as amended from time to time.

 



 

Enhanced Property Recovery Cell

The investment objective of the Company for the EPR Cell in respect of the EPR Shares is to provide shareholders with the opportunity to participate in the performance of shares traded on various European stock exchanges through the FTSE EPRA Europe Real Estate Index (the "EPRA Index"). The EPRA Index is an index designed to track the performance of listed real estate companies in Europe. The Final Redemption Amount will be determined principally by reference to two values - the first (defined as the "Initial Index Level") being the level of the EPRA Index determined on 13 March 2008, the second (defined as the "Final Index Level") being the arithmetic average of the levels of the EPRA Index on 13 monthly averaging dates from 13 March 2013 to the Maturity Date inclusive.


 

In accordance with the Company's investment objective for the EPR Cell, the net proceeds at launch were invested into an Index Derivative Contract (the "EPR Contract") with BNP Paribas, the Investment Counterparty.  Under the terms of the EPR Contract the Company, on behalf of the EPR Cell, is to receive, at redemption an amount equalling the funds available for payment of the investment return.

 

Full details of the calculation of the investment return, the EPR Contract and collateral arrangements in favour of the Company for the account of the EPR Cell are disclosed inthe EPR Cell's Summary and Securities Note, a copy of which is available from the Company's Administrator or Distributor upon request.

 

In accordance with their defined investment life, all EPR Shares were compulsorily redeemed on 20 March 2014.

 

Energy - Base Metals (3) Cell

The investment objective of the Company for the EBM3 Cell in respect of the EBM3 Shares is to provide shareholders with a geared exposure to any increase in the prices of a notional portfolio of certain energy related and base metal commodities (the "Commodity Portfolio") over a six-year period.  The Commodity Portfolio is a notional portfolio of commodities comprising 30% crude oil, 20% aluminium, 20% copper, 15% nickel and 15% zinc.

 

The investment return of the EBM3 Shares is not subject to the risk of foreign exchange movements, save to the extent that the value of the commodities comprised in the notional portfolio, which are priced in US dollars, may be affected by fluctuations in value of the US dollar. 

 

In accordance with the Company's investment objective for the EBM3 Cell, the net proceeds at launch, together with the proceeds raised in the subsequent issue of further EBM3 Shares, were invested in an Index Derivative Contract (the "EBM3 Contract") with BNP Paribas, the Investment Counterparty.  Under the terms of the EBM3 Contract, the Company, on behalf of the EBM3 Cell, is to receive, at redemption, an amount equalling the funds available for payment of the investment return.

 

Full details of the calculation of the investment return, the EBM3 Contract and collateral arrangements in favour of the Company for the account of the EBM3 Cell are disclosed inthe EBM3 Cell's Summary and Securities Note, a copy of which is available from the Company's Administrator or Distributor upon request.

 

In accordance with their defined investment life, all EBM3 Shares were compulsorily redeemed on 12 June 2014.

 

Enhanced Income Cell

The investment objective of the Company for the EI Cell in respect of the Class A EIF Shares is to provide shareholders with a stable stream of quarterly dividend distributions (with a targeted dividend yield of approximately 8% per annum, subject to increase and decrease in certain circumstances) and return on capital.  Such investment objective being intended to be achieved by reference to an investment strategy linked to the total return performance of the DJES50 Index and notional short-term call options written on the DJES50 Index.

 

In accordance with the Company's investment objective for the EI Cell, the gross proceeds at launch, together with the proceeds raised in the subsequent issue of further Class A EIF Shares, were invested into an Index Derivative Contract (the "EI Contract") with BNP Paribas, the Investment Counterparty. 

 

Under the terms of the EI Contract, the Company, on behalf of the EI Cell, is to receive an amount initially equal to 2 pence per Class A EIF Share on each dividend payment date, which will be applied by the Company in funding the payment of dividends to shareholders, and, at redemption, an amount equal to the net asset value of the underlying portfolio.

 

Full details of the calculation of the investment return, the EI Contract and the collateral arrangements are disclosed in the EI Cell's Summary and Securities Note, a copy of which is available from the Company's Administrator or Distributor upon request.

 

US Enhanced Income Cell

The investment objective of the Company for the USEI Cell in respect of the Class A USEI Shares and Class B USEI Shares is to provide shareholders with a stable stream of quarterly dividend distributions (with a targeted dividend yield of approximately 8% per annum, subject to increase and decrease in certain circumstances) and return on capital.  The investment objective is intended to be achieved by reference to an investment strategy linked to the total return performance of the Standard and Poor's 500®Index (the "S&P500 Index") and notional short-term call options written on the S&P500 Index.

 

In accordance with the Company's investment objective for the USEI Cell, the net proceeds at launch together with the proceeds raised in the subsequent issue of further Class A USEI Shares and Class B USEI Shares, were invested into an Index Derivative Contract (the "USEI Contract") with BNP Paribas, the Investment Counterparty.  Under the terms of the USEI Contract, the Company, on behalf of the USEI Cell, is to receive an amount initially equal to 2 pence or cents per Class A USEI Share or Class B USEI Share respectively on each dividend payment date, which will be applied by the Company in funding the payment of dividends to shareholders, and, at redemption, an amount equal to the net asset value of the underlying portfolio.

 

Full details of the calculation of the investment return, the USEI Contract and the collateral arrangements in favour of the Company, for the account of the USEI Cell, are disclosed in the USEI Cell's Summary and Securities Note, a copy of which is available from the Company's Administrator or Distributor upon request.

 

UK Enhanced Income Cell

The investment objective of the Company for the UKEI Cell in respect of the UKEI Shares is to provide shareholders with a stable stream of quarterly dividend distributions (with a targeted dividend yield of approximately 8% per annum, subject to increase and decrease in certain circumstances) and return on capital.

 

The investment objective is intended to be achieved by reference to an investment strategy linked to the total return performance of the FTSE 100Index (the "FTSE100 Index") and notional short-term call options written on the FTSE100 Index.

 

In accordance with the Company's investment objective for the UKEI Cell, the net proceeds raised at launch were invested into an Index Derivative Contract (the "UKEI Contract") with BNP Paribas, the Investment Counterparty.  Under the terms of the UKEI Contract the Company, on behalf of the UKEI Cell, is to receive an amount initially equal to 2 pence per UKEI Share on each dividend payment date, which will be applied by the Company in funding the payment of dividends to shareholders, and, at redemption, an amount equal to the net asset value of the underlying portfolio.

 

Full details of the calculation of the investment return, the UKEI Contract and the collateral arrangements in favour of the Company, for the account of the UKEI Cell, are disclosed in the UKEI Cell's Summary and Securities Note, a copy of which is available from the Company's Administrator or Distributor upon request.


 

As at 30 April 2014, the accounting reference date, the calculated net asset value per share in each existing cell at that date was as follows:-


As at 30 April 2014

As at 31 Oct 2013

 

Enhanced Property Recovery ("EPR")

 

-

79.26 pence

Energy - Base Metals (3) ("EBM3")

 

99.69 pence

99.32 pence

Enhanced Income - Class A ("EIF")

 

95.92 pence

96.60 pence

US Enhanced Income - Class A ("USEI A")

 

115.49 pence

113.13 pence

US Enhanced Income - Class B ("USEI B")

 

115.26 US$ cents

113.08 US$ cents

UK Enhanced Income ("UKEI")

 

85.29 pence

91.38 pence

 


 

The Board of directors draws shareholders' attention to the statement on page 3 wherein the early redemption of the existing cells is detailed.

 

A description of important events for each cell and the Company which have occurred during the reporting period and their impact on the performance of the Company as shown in the financial statements is given in the Investment Manager's Report on pages 17 to 21 and is incorporated here by reference. 

 

A description of the principal risks and uncertainties facing the Company is given in note 6 to the financial statements and is incorporated here by reference. The principal risks and uncertainties facing the Company to the end of its financial year are considered to be the same as those which applied in the first six months of the financial year.

 

There were no material related party transactions which took place in the first six months of the financial year.

 

This half-yearly financial report has not been audited nor reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

 

Responsibility Statement

The Board of directors jointly and severally confirm that, to the best of their knowledge:

 

(a)        the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

 

(b)        this Management Report includes or incorporates by reference:

1)   An indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

2)   A description of the principal risks and uncertainties for the remaining six months of the financial year;

3)     Confirmation that there were no material related party transactions in the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period; and

 

4)   Changes in the related parties transactions described in the Company's last annual financial report that could have a material effect on the financial position or performance of the Company in the first six months of the current financial year.

 

 

 

 

John Le Prevost                                  Trevor Hunt

Director                                               Director

 

29 August 2014

 


On the invitation of the directors of the Company, the following commentary is provided by THEAM, the Investment Manager.  Their commentary is provided as a source of useful information for shareholders of the Company but is not directly attributable to the Company.


 

BNP Paribas Energy-Base Metals (3)

 

Listing: Channel Islands Securities Exchange Authority Limited

Launch date: 5 June 2008

Issue price at launch: 100 pence

NAV at launch: 100 pence

Maturity date: 12 June 2014

ISIN: GG00B2R9LW24

SEDOL: B39TP47

Epic Code: EBMC

 

Investment Objective

The EBM3 Shares are a six-year investment offering 175% of the upside of the spot prices of a portfolio of commodities.  The portfolio comprises West Texas Intermediate Oil (30%), Natural Gas (20%), Aluminium (12.5%), Copper (12.5%), Nickel (12.5%) and Zinc (12.5%).  If the portfolio performance is negative over six years, 100 pence is returned at maturity.

 

The name and weighting of each commodity, the spot prices of each commodity recorded at launch (the nearest futures price in the case of oil) and as of 30 April 2014 are set out in the table below.

 

Source for commodity values information:  Bloomberg

 

Investment Performance

Between the launch on 5 June 2008 and close on 30 April 2014 the NAV has fallen by 0.33%.  Over this period, the DJ-UBS Commodity Excess Return Index has fallen by 36.66%


This represents a significant outperformance of 36.33% of the fund from the benchmark index. The fund achieved an approximate 50% reduction in the benchmark's volatility from 19.25% to 9.90%. The EBM3 Shares were compulsorily redeemed on 12 June 2014.   

 

Enhanced Income

 

Listing: Channel Islands Securities Exchange Authority Limited

Launch date: 19 March 2009

Issue price at launch: 101 pence

NAV immediately following launch: 100 pence

Maturity date: 15 September 2014

Class A ISIN: GG00B4W90V35

Class A SEDOL: B65H881

Class B ISIN: GG00B4W90W+42

Class B SEDOL: B4W90W4

 

Investment Objective

The investment objective of the EI Cell is to provide Shareholders with a stable stream of quarterly dividend distributions (with a targeted dividend yield of approximately 8% per annum, subject to increase and decrease in certain circumstances) and return on capital based on an investment strategy linked to the performance of the Dow Jones Eurostoxx 50 Index and notional call options written on the SX5E Index.  Dividend distributions on the Class A EIF Shares will be denominated and paid in GBP and in EUR in respect of the Class B shares.  There are currently no Class B shares in issue.

 

Investment Performance

Between the launch on 19 March 2009 and close on 30 April 2014 the Total Return Performance rose by 39.46%.  Over the same period the Dow Jones Eurostoxx Total Return Index (SX5T) increased by 86.53%. The directors declared interim dividends over the last three years as follows:

    


 

Announcement

Ex-Dividend

Pay Date

Dividend

23-Mar-11

30-Mar-11

29-Apr-11

2.00%

23-Jun-11

29-Jun-11

01-Jul-11

2.00%

22-Sep-11

28-Sep-11

30-Sep-11

1.80%

20-Dec-11

28-Dec-11

30-Dec-11

1.90%

21-Mar-12

28-Mar-12

 01-May-12

2.00%

27-Jun-12

04-Jul-12

03-Aug-12

1.90%

26-Sep-12

03-Oct-12

02-Nov-12

1.90%

24-Dec-12

02-Jan-13

01-Feb-13

2.00%

27-Mar-13

03-Apr-13

05-Apr-13

2.00%

26-Jun-13

03-Jul-13

02-Aug-13

1.90%

25-Sep-13

02-Oct-13

04-Oct-13

1.90%

27-Dec-13

08-Jan-14

07-Feb-14

2.00%

26-Mar-14

02-Apr-14

07-May-14

1.90%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Sterling Hedged US Enhanced Income Preference Shares and Class B US Dollar Unhedged US Enhanced Income Preference Shares

 

Listing: Channel Islands Securities Exchange Authority Limited

Launch date: 16 July 2009

Issue price at launch: 101 pence

NAV immediately following launch: 100 pence class A & 100 cents class B

Maturity date: 15 September 2014

Class A ISIN: GG00B4409G28

Class A SEDOL: B3P3372 GB

Class B ISIN: GG00B4409P19

Class B SEDOL: B4409P1

 

Investment Objective

The USEI Cell's investment objective is to provide Shareholders with a stable stream of quarterly dividends (with a targeted dividend yield of approximately 8% per annum, subject to increase and decrease in certain circumstances) and return on capital, such investment 


 objective being intended to be achieved by reference to an investment strategy (the "Strategy") linked to the total return performance of the S&P500 Index and notional short-term call options written on the S&P500 Index.

 

Investment Performance

Between launch on 16 July 2009 and close on 30 April 2014 the NAV Total Return Performance increased 66.23% and 65.84% respectively for class A and class B (based on an initial NAV of 100 pence and 100 cents respectively for class A and class B) compared with the S&P TR Performance, which increased 121.48% over that period.  The directors declared interim dividends over the last three years for both Share classes according to the following schedule:  

Announcement

Ex-Dividend

Pay Date

Dividend

20-Jan-11

26-Jan-11

25-Feb-11

2.20%

20-Apr-11

27-Apr-11

27-May-11

2.20%

20-Jul-11

27-Jul-11

26-Aug-11

2.20%

19-Oct-11

26-Oct-11

25-Nov-11

2.00%

18-Jan-12

25-Jan-12

24-Feb-12

2.00%

18-Apr-12

25-Apr-12

29-May-12

2.00%

18-Jul-12

25-Jul-12

24-Aug-12

2.00%

24-Oct-12

31-Oct-12

30-Nov-12

2.20%

23-Jan-13

30-Jan-13

01-Mar-13

2.00%

28-Mar-13

03-Apr-13

03-May-13

2.00%

24-Jul-13

31-Jul-13

02-Sep-13

2.20%

23-Oct-13

30-Oct-13

29-Nov-13

2.20%

22-Jan-14

29-Jan-14

28-Feb-14

2.30%

23-Apr-14

30-Apr-14

02-Jun-14

2.30%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Enhanced Income

 

Listing: Channel Islands Securities Exchange Authority Limited

Launch date: 24 September 2009

Issue price at launch: 101 pence

NAV immediately following launch: 100 pence

Maturity date: 15 September 2014

ISIN: GG00B3YF5842                                    .


SEDOL: B3YF584

 

Investment Objective

The UKEI Cell's investment objective is to provide Shareholders with a stable stream of quarterly dividends (with a targeted dividend yield of approximately 8% per annum, subject to increase and decrease in certain circumstances) and return on capital, such investment objective being intended to be achieved by reference to an investment strategy linked to the total return performance of the FTSE100 Index and notional short-term call options written on the FTSE100 Index.

 

Investment Performance

Between launch on 24 September 2009 and close on 30 April 2014 the Total Return Performance had increased by 22.72%.  Over this period the FTSE 100 Total Return Index had risen by 57.04%.  The directors declared interim dividends over the last three years according to the following schedule:

 

Announcement

Ex-Dividend

Pay Date

Dividend

24-Dec-10

05-Jan-11

04-Feb-11

2.00%

24-Mar-11

06-Apr-11

06-May-11

2.00%

24-Jun-11

06-Jul-11

05-Aug-11

  2.00%

24-Sep-11

05-Oct-11

04-Nov-11

  1.90%

04-Jan-12

11-Jan-12

10-Feb-12

  1.90%

28-Mar-12

04-Apr-12

10-May-12

  2.00%

27-Jun-12

04-Jul-12

03-Aug-12

  1.80%

26-Sep-12

03-Oct-12

02-Nov-12

  1.90%

02-Jan-13

09-Jan-13

08-Feb-13

1.90%

28-Mar-13

03-Apr-13

05-Apr-13

1.90%

26-Jun-13

03-Jul-13

02-Aug-13

1.80%

02-Oct-13

09-Oct-13

08-Nov-13

1.90%

02-Jan-14

08-Jan-14

07-Feb-14

1.90%

26-Mar-14

02-Apr-14

07-May-14

1.70%

 


 

 


 



Period to


Period to



30 April 2014


30 April 2013


Notes

Total


Total



GBP


GBP






Net movement in unrealised gains on investments

3

4,624,542


89,648,482






Unrealised foreign exchange losses

3

(1,443,748)


(5,101,946)






Income from financial assets at fair value through profit





or loss


6,776,820


5,031,582






Finance costs - distributions to holders of Preference Shares

1l

(6,776,820)


(5,031,582)






Realised losses on investments

3

(6,083,698)


(80,532,352)











(Decrease) / increase in net assets attributable to





Preference shareholders from operations


(2,902,904)


4,014,184






Income received from Counterparty in relation to





Operating expenses

1b

261,818


639,940






Operating expenses

1b, 7

(290,129)


(384,681)











(Decrease) / increase in net assets from operations


(2,931,215)


4,269,443






Other Comprehensive Income


-


-






Total Comprehensive Income


(2,931,215)


4,269,443








Pence


Pence

(Loss) / gain per Share

1j

(1.14)


1.12






 

 

 

 

 

 

 

 

The notes on pages 27 to 48 form an integral part of these Financial Statements.




Period to


Year to



30 April 2014


31 Oct 2013


Notes

Total


Total



GBP


GBP

ASSETS





NON CURRENT ASSETS





Financial assets at fair value through profit or loss

3

-


170,088,165






CURRENT ASSETS





Financial assets at fair value through profit or loss

3

216,274,840


73,130,881

Cash and cash equivalents

1b

1,948,918


1,130,359

Investment income receivable


1,729,991


2,616,595



219,953,749


76,877,835






LIABILITIES





CURRENT LIABILITIES





Accrued expenses


120,851


107,246

Dividends payable

1l

3,323,241


3,376,580








3,444,092


3,483,826






TOTAL NET ASSETS


216,509,657


243,482,174






NET ASSETS ATTRIBUTABLE TO HOLDERS OF





PREFERENCE SHARES

3

216,274,840


243,219,046






NET ASSETS ATTRIBUTABLE TO HOLDERS OF





MANAGEMENT SHARES

1b

234,817


263,128

 

 

The Financial Statements were approved and authorised for issue by the Board of directors on 29 August 2014 and are signed on its behalf by:

 

 

 

 

John Le Prevost                         Trevor Hunt

Director                                                 Director

 

 

 

 

 

 

 

 

The notes on pages 27 to 48 form an integral part of these Financial Statements.


 


Period to


Period to


30 April 2014


30 April 2013


Total


Total


GBP


GBP

Net gain brought forward attributable to Preference Shares

243,219,046


352,938,637

Redemption of shares

(24,041,302)


(43,120,420)

Net (loss) / gain for the period attributable to holders of Preference Shares

(2,902,904)


4,014,184





Balance attributable to Preference Shares as at 30 April

216,274,840


313,832,401





Net gain brought forward attributable to Management Shares

263,128


334,320

Net gain for the period attributable to holders of Management Shares

(19,311)


403,562





Balance attributable to Management Shares as at 30 April

234,817


737,882





Total balance attributable to shares as at 30 April


216,509,657


314,570,283





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 27 to 48 form an integral part of these Financial Statements.

 


 


Period to


Period to


30 Apr 2014


30 Apr 2013


Total


Total


GBP


GBP

Operating activities




Net operating (loss) / gain for the period

(2,931,215)


4,269,443

Distributions to holders of Preference Shares

6,830,159


9,087,811

Movement in realised and unrealised loss / (gain) on investments

1,459,156


(9,116,130)

Movement in unrealised foreign exchange losses

1,443,748


5,101,946

Movement in debtors and creditors during the period

846,870


68,531

Redemption of financial assets

24,041,302


43,120,420

Net cash flow from operating activities

31,690,020


52,532,021





Financing activities




Distributions to holders of Preference Shares redeemed

(24,041,302)


(43,120,420)

Distributions to holders of Preference Shares

(6,830,159)


(9,087,811)

Net cash flow from financing activities

(30,871,461)


(52,208,231)





Increase in cash and cash equivalents

818,559


323,790









Cash and cash equivalent at beginning of period

1,130,359


2,171,973

Increase in cash and cash equivalents

818,559


323,790

Exchange rate adjustment

-


11,241

Cash and cash equivalents at end of period

1,948,918


2,507,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 27 to 48 form an integral part of these Financial Statements.


Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014

 

1          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies adopted by the Company and applied in the preparation of these Financial Statements are set out below.  These policies have been consistently applied to all periods presented, unless otherwise stated in the following text.

 

(a)        Basis of preparation

The Financial Statements have been prepared in conformity with International Financial Reporting Standards ("IFRS") and applicable Guernsey Laws and The Protection of Investors (Baliwick of Guernsey) Law, 1987.

 

Non-going concern basis

 

The financial statements have been prepared in accordance with the non-going concern basis following the approval by a majority shareholder to bring forward the redemption date of all existing cells to 15 September 2014. Adoption of the non-going concern basis requires that the assets are reduced to their recoverable amounts and that provisions are made for future losses. The directors have considered whether there is any indication that the recoverable amount of the Company's assets are lower than the amount recorded as fair value at 30 April 2014. They have concluded that any post balance sheet changes in value reflect fair value changes and do not indicate a reduction in the recoverable amount at 30 April 2014 and, accordingly, that no adjustment is required to the carrying amount of the Company's assets or increase in the Company's liabilities at fair value through profit and loss. In addition the directors have considered whether any provision is required for future losses. The Company will continue to incur expenses up to the date of liquidation. However, the anticipated income receivable from the Counterparty, is expected to exceed the Company's estimated future expenses and, accordingly, the directors do not consider that a provision for future losses is required.

 

The Financial Statements have been prepared under the historical cost convention as modified for the measurement at fair value of financial instruments held at fair value through profit or loss.

 

The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates.  It also requires the Board of directors to exercise judgement in the process of applying the Company's accounting policies.  The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 2.

 

Changes in accounting policy and disclosures:

The following Standards or Interpretation relevant to the entity have been adopted in the current period. Their adoption has not had any impact on the amounts reported in these Financial Statements and is not expected to have any impact on future financial periods.

 

IAS 1 Presentation of Financial Statements - Amendments to revise the way other comprehensive income is presented for periods beginning on or after 1 July 2012.

 

IAS 1 Presentation of Financial Statements - Amendments resulting from Annual Improvements 2009 - 2011 cycle (comparative information) for periods beginning on or after 1 January 2013.

 

IAS 32 Financial Instruments: Presentation - Amendments resulting from Annual Improvements 2009 - 2011 cycle (comparative information) for periods beginning on or after 1 January 2013.

 

IFRS 7 Financial Instruments: Disclosures - Amendments relating to the offsetting of assets and liabilities effective for annual periods beginning on or after 1 January 2013 and interim periods within those periods.

 

IFRS 13 Fair value measurement - This standard aims to increase consistency and comparability in fair value measurements and related disclosure requirements for use across IFRSs.  The requirements do not extend to the use of fair value accounting but provide guidance on how it should be applied.  This standard is effective for annual periods beginning on or after 1 January 2013.

 

The following Standards or Interpretations have been issued by the International Accounting Standards Board (IASB) but not yet adopted effective by the Company.

 

IFRS 7 Financial Instruments: Disclosures - Deferral of mandatory effective date of IFRS 9 and amendments to transition disclosures effective for annual periods beginning on or after 1 January 2018.

 

IFRS 7 Financial Instruments: Disclosures - Additional hedge accounting disclosures (and consequential amendments) effective for annual periods beginning on or after 1 January 2018.

 

IFRS 9 Financial Instruments - Classification and measurement of financial assets, effective for annual periods beginning on or after 1 January 2015.

 

IFRS 9 Financial Instruments - Accounting for financial liabilities and derecognition, effective for annual periods beginning on or after 1 January 2015.

 

IFRS 9 Financial Instruments - Reissue to incorporate a hedge accounting chapter and permit the early application of the requirements for presenting in other comprehensive income the 'own credit' gains or losses on financial liabilities designated under the fair value option without early applying the other requirements of IFRS 9, effective for annual periods beginning on or after 1 January 2018.

 

IFRS 13 Fair value measurement - Amendments resulting from Annual Improvements 2011 - 2013 cycle effective for annual periods beginning on or after 1 July 2014.

 

IAS 32 Financial Instruments: Presentation - Amendments relating to the offsetting of assets and liabilities effective for annual periods beginning on or after 1 January 2014.

 

IAS 39 Financial Instruments: Recognition and Measurement - Amendments for novations of derivatives for annual periods beginning on or after 1 January 2014.

 

IAS 39 Financial Instruments: amendments to permit an entity to elect to continue to apply the hedge accounting requirements in IAS 39 for a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities when IFRS 9 is applied, and to extend the fair value option to certain contracts that meet the 'own use' scope exception, effective for annual periods beginning on or after 1 January 2018.

 

The directors have considered the above and are of the opinion that the above Standards and Interpretations are not expected to have a material impact on the Company's Financial Statements except for the presentation of additional disclosures and changes to the presentation of components of the Financial Statements. These items will be applied in the first financial period for which they are required.

 



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014

 

1          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(b)        Recognition of expenses and related income

Pursuant to the terms of an Engagement Letter dated 10 January 2006 between the Company and BNP Paribas SA ("BNP"), it is agreed that BNP will pay a notional quarterly amount in advance to cover the anticipated expenses of the Company.  Any cash at bank relating to the excess of income over expenses is due to BNP as holder of the Management Shares of the Company and is not due to the holders of Preference Shares.

 

Expenses borne by BNP on behalf of the Company and income received in order to pay Company expenses are included in the Statement of Comprehensive Income as the directors are of the opinion that this more accurately reflects the position of the Company.  Additionally the cash at bank relating to the excess of income received from BNP over expenses paid out has been allocated to the holders of Management shares in the Statement of Financial Position.  The expenses are detailed in Note 7 Related Party Transactions.

 

On 27 June 2013 the Company entered into an Expenses Agreement with BNP.  The Agreement states that there is a surplus of £250,000 in the expense accounts into which BNP provide funding for expenses borne by the company.  This surplus was moved in to a separate bank account and is included in cash and cash equivalents on the Statement of Financial Position.  Under the terms of the Agreement this surplus is not to be returned to BNP but made available to the Company to be used by the Board to satisfy any liability incurred by the Board in acting on behalf of the Company or any of its cells.  For this purpose, BNP have requested that the surplus be capitalised to the two ordinary shares of no par value issued by the Company which are held by JTC  (Guernsey) Limited for the benefit of BNP Paribas Arbitrage SNC.  The balance of the expense accounts are to be monitored going forward and any subsequent surplus balances are to be returned to BNP. 

 

(c)        Functional and presentation currency

Items included in the Company's Financial Statements are measured using the currency of the primary economic environment in which it operates (the "functional currency").  This is pounds sterling, which reflects the Company's primary activity of investing in sterling-denominated derivative transactions.  The Company has adopted pounds sterling as its presentation currency as the Company is listed on the Channel Islands Securities Exchange Authority Limited and the majority of its registered shareholders are domiciled in the United Kingdom.

 

(d)        Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.  Translation differences on non-monetary financial assets and liabilities such as equities at fair value through profit or loss are recognised in the Statement of Comprehensive Income as unrealised foreign exchange gains / (losses).

 

In previous periods the unrealised foreign exchange gains / (losses) were presented as Other Comprehensive Income.  However, this is not in line with the requirements of the IAS1: Presentation of Financial Statements.  Therefore, in the current year unrealised gains / (losses) on foreign exchange have been included in the increase / (decrease) in net assets attributable to Preference Share Holders from operations.  The unrealised gains / (losses) on foreign exchange in the period to 30 April 2012 have not been reclassified as the value is immaterial to the Financial Statements.

 

Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014

 

1                SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(e)        Taxation

The Company has been granted exemption from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, and is charged an annual fee of £600.  Dividend income is recognised on a gross basis, including withholding tax, if any.  Withholding tax is recognised through the Statement of Comprehensive Income.

 

(f)         Expenses

All expenses are accounted for on an accruals basis and accounted for in the Statement of Comprehensive Income.  As described in note 1(b) all expenses are borne by BNP pursuant to the terms of an Engagement Letter between the Company and BNP.  The ongoing expenses for the period under review are detailed in Note 7 to the Financial Statements.

 

(g)        Cash and cash equivalents

At the reporting date, cash and cash equivalents comprise cash at bank.  As detailed in note 1(b), all expenses of the Company are borne by BNP, with income being received from BNP for the payment of Company expenses.  Any excess of income received from BNP for payment of expenses is accounted for as cash and cash equivalents attributable to the holders of Management Shares.  This includes a balance of £250,000 which is held in trust for use by the Board as set out in 1(b) above.

 

(h)        Income recognition

Dividend income is recognised in the Statement of Comprehensive Income when the relevant cell's right to receive the dividend has been established, normally being the ex-dividend date.  Dividend income is recognised on a gross basis, including withholding tax, if any.

 

Income received from BNP is recognised in the Statement of Comprehensive on an accruals basis.

 

(i)         Financial assets at fair value through profit or loss

All investments and derivative financial instruments are classified as "at fair value through profit or loss".  Investments are initially recognised at cost, being the fair value of the consideration given.  After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and changes in fair value investments being recognised in the Statement of Comprehensive Income.

 

The Company seeks to achieve the investment objective of each cell by entering into a contract with BNP Paribas (referred to herein as the "Counterparty"). 

 

Each contract is substantially in the form of an ISDA Master Agreement as supplemented by a transaction confirmation.  In respect of each contract, within BNP Paribas Group (the "Group"), the Risk department is responsible for the day-to-day risk monitoring and contributes to the control of the economic fair value of the Group's trading books.  This risk function department is separate and independent from the Trading and Sales departments.

 

This department is also responsible for the validation and control of any valuation models.



Harewood Structured Investment PCC Limited

 

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

1          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(j)         (Loss) / gain per share

The (loss) / gain per share is based on the (decrease) / increase in net assets attributable to Preference shareholders from operations of the Company for the period. A loss of £2,902,904 (Apr 2013: £4,014,184) and on 254,317,923 (Apr 2013: 358,827,307) shares, being the weighted average number of shares in issue during the period.  There were no dilutive instruments in issue during the period.

 

(k)        Trade date accounting

All "regular way" purchases and sales of financial assets are recognised on the "trade date" i.e. the date that the entity commits to purchase or sell the asset.  Regular way purchases are sales of financial assets that require delivery of the asset within the time frame generally established by the regulation or convention in the market place.

 

(l)         Distributions payable to holders of redeemable shares

Proposed distributions to holders of redeemable shares are recognised in the Statement of Comprehensive Income when they are declared by the Board of directors.  The distribution on these redeemable shares is recognised in the Statement of Comprehensive income as a finance cost. 

           

(m)       Going Concern

On 15 August 2014 the Company received the written consent of the requisite majority of shareholders in each of the existing cells to effect the early termination of all of the existing cells. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of all the existing cells. The redemption dates of all cells have therefore been brought forward to 15 September 2014.

 

Accordingly, these financial statements have been prepared in accordance with the non-going concern basis.  Further details of this have been provided in Note 1(a) above.

 

 

2          CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

Management make critical accounting estimates and judgements concerning the future.  The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the financial period are outlined below:


Harewood Structured Investment PCC Limited

 

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

 

2          CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

 

(a)        Fair value of financial instruments

The Company holds derivatives which are tailored to meet the Company's respective needs for each cell.  As the investments are not traded in an active market, the fair value of such instruments is determined by using valuation techniques.  The fair value is calculated weekly and as at each month end by the Counterparty.  At each interim and year end date, an independent check of the valuations of the investments is performed by Future Value Consultants Limited (the "Calculation Agent"), an independent third party.  The Calculation Agent uses a variety of methods and makes assumptions that are based on market conditions existing at the reporting date.  Valuation techniques used include the use of comparable recent arm's length transactions (where available), discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.  These techniques are periodically reviewed by experienced personnel at the Calculation Agent.

 

Models use observable data, to the extent practicable.  However, areas such as credit risk (both own and counterparty), volatilities, capital risk and correlations require management to make estimates.  Changes in assumptions about these factors could materially affect the reported fair value of financial instruments.

 

3          NET ASSETS ATTRIBUTABLE TO HOLDERS OF PREFERENCE SHARES

 



Period to


Year to



30 Apr 2014


31 Oct 2013



Total


Total



GBP


GBP






Opening portfolio cost


248,446,144


447,141,821

Opening unrealised loss on valuation


(5,376,231)


(100,502,668)

Opening exchange gains on currency balances


149,133


6,299,484

Opening valuation








Proceeds from sales of financial assets


(24,041,302)


(110,684,599)

Unrealised gain for the period / year


4,624,542


95,126,437

Realised loss on investments for the period / year


(6,083,698)


(88,011,078)

Unrealised foreign exchange losses on currency balances


(1,443,748)


(6,150,351)






Closing valuation


216,274,840


243,219,046






Closing portfolio cost


218,321,144


248,446,144

Closing unrealised loss


(751,689)


(5,376,231)

Closing exchange gains on currency balances


(1,294,615)


149,133






Closing valuation


216,274,840


243,219,046



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

3          NET ASSETS ATTRIBUTABLE TO HOLDERS OF PREFERENCE SHARES (continued)

 

IFRS 7 requires fair value measurements to be disclosed by the source of inputs, using the following three-level hierarchy:

 

·      Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)

·      Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2).

·      Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

 

The financial assets held by the Company have been classified as Level 2.  This is in accordance with the fair value hierarchy.

 

There have been no transfers between Level 2 and Level 3 of the fair value hierarchy during the period under review.

 

Valuation techniques

 

The value of the Shares of the Company's Cells is calculated in accordance with the provisions of each Summary and Securities Note as approved by the Directors. The valuation methodology follows certain criteria, amongst which:

 

·      the initial value of the Cell

·    the performance of the Index, the premium and exercise payoff of the overwritten Call Options, and foreign exchange level (if applicable) since inception

·      the volatility, expected yield and repo of the Index, and prevailing relevant interest rate

·      the remaining maturity and exercise prices of the overwritten Call Options

·     the dividends and interest receivables or paid by the Cell

 

The valuation of the Cells at the period end date may differ significantly from the eventual proceeds realised upon maturity of the Cells. The movement on unrealised gains/losses resulting from valuing these investments is reflected in the Statement of Comprehensive Income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

4          SHARE CAPITAL

 

Authorised

SHARES

GBP

Preference shares of no par value each

Unlimited

-

Management shares of no par value each

2

-


2

-

 

Allotted, called-up and fully paid Preference Shares

Shares issued as at

1 November 2013


 

Shares Redeemed


 

Shares Issued


Shares issued as at 30 April 2014









US HI A Cell

-


-


-


-

US HI B Cell

-


-


-


-

Agrinvest Cell

-


-


-


-

EPR Cell

30,125,000


(30,125,000)*


-


-

EBM3 Cell

49,587,600


-


-


49,587,600

EI Cell

39,999,346


-


-


39,999,346

UK EI Cell

49,015,722


-


-


49,015,722

COMAC Cell

-


-


-


-

USEI A Cell

48,500,080


-


-


48,500,080

USEI B Cell

45,079,125


-


-


45,079,125









Management Shares

2




-


2









TOTAL

262,306,875


(30,125,000)


-


232,181,875

 

*See Note 8

 

 

 

 

 

 

 

 

 

 

 

Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

4          SHARE CAPITAL (continued)

 

Allotted, called-up and fully paid Preference Shares

Shares issued as at

1 November 2012


 

Shares Redeemed


 

Shares Issued


Shares issued as at 31 October 2013









US HI A Cell

92,469,987


(92,469,987)


-


-

US HI B Cell

58,337,229


(58,337,229)


-


-

Agrinvest Cell

47,225,896


(47,225,896)


-


-

EPR Cell

30,125,000


-


-


30,125,000

EBM3 Cell

49,587,600


-


-


49,587,600

EI Cell

39,999,346


-


-


39,999,346

UK EI Cell

49,015,722


-


-


49,015,722

COMAC Cell

25,526,009


(25,526,009)


-


-

USEI A Cell

48,500,080


-


-


48,500,080

USEI B Cell

45,079,125


-


-


45,079,125









Management Shares

2


-


-


2









TOTAL

485,865,996


(223,559,121)


-


262,306,875

 

Holders of Management Shares shall not be entitled to receive and shall not participate in any dividends or other distributions out of the profits of the Company.  On winding up Management shareholders are only entitled to an amount up to a maximum being the Net Assets Attributable to Holders of Management Shares and have no right to the Net Assets Attributable to the Holders of Preference Shares.  Holders of Management Shares shall be entitled to receive notice of and to attend and vote at general meetings.  The Management Shares are not redeemable and comprise the Company's non-cellular assets.  The Holders of Preference Shares are not entitled to receive distributions based on non-cellular assets.

 

Holders of BNP Paribas Energy - base Metals (3) Preference Shares ("Cell Shares") shall not be entitled to receive and shall not participate in any dividends or other distributions of the Company.

 

Holders of Class A Sterling Hedged US Enhanced Income Preference Shares, Class B US Dollar Unhedged US Enhanced Income Preference Shares, Enhanced Income Preference Shares and UK Enhanced Income Preference Shares shall be entitled to receive any dividends or other distributions out of the profits of their respective cells only, but not out of the non-cellular assets of the Company.

 

On their respective redemption dates the holders of Cell Shares shall be entitled to receive per Cell Share held an amount equal to the net asset value per Cell Share.  As disclosed in the Supplemental Memorandum or summary and Securities Note for each cell, the Cell Shares of each cell will be compulsorily redeemed by the Company on their respective redemption dates.

 

Holders of the Cell Shares shall not be entitled to receive notice of or to attend or vote at any general meeting of the Company.

 



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

5          SHARE PREMIUM

 

Share Premium Preference Shares

Share premium as at 1 November 2013


 

Shares Redeemed


 

Shares Issued


Share premium as at

30 April 2014


GBP


GBP


GBP


GBP









USHI A Cell

-


-


-


-

USHI B Cell

-


-


-


-

Agrinvest Cell

-


-


-


-

EPR Cell

30,125,000


(30,125,000)*


-


-

EBM3 Cell

49,292,100


-


-


49,292,100

EI Cell

42,548,346


-


-


42,548,346

UK EI Cell

49,015,722


-


-


49,015,722

COMAC Cell

-


-


-


-

USEI A Cell

48,500,080


-


-


48,500,080

USEI B Cell

28,964,898


-


-


28,964,898









TOTAL

248,446,146


(30,125,000)


-


218,321,146

 

*See Note 8

 

Share Premium Preference Shares

Share premium as at 1 November 2012


 

Shares Redeemed


 

Shares Issued


Share premium as at

31 October 2013


GBP


GBP


GBP


GBP









US HI A Cell

92,942,487


(92,942,487)


-


-

US HI B Cell

30,710,285


(30,710,285)


-


-

Agrinvest Cell

49,516,896


(49,516,896)


-


-

EPR Cell

30,125,000


-


-


30,125,000

EBM3 Cell

49,292,100


-


-


49,292,100

EI Cell

42,548,346


-


-


42,548,346

UK EI Cell

49,015,722


-


-


49,015,722

COMAC Cell

25,526,009


(25,526,009)


-


-

USEI A Cell

48,500,080


-


-


48,500,080

USEI B Cell

28,964,898


-


-


28,964,898









TOTAL

447,141,823


(198,695,677)


-


248,446,146



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

 

The Company's activities expose it to a variety of financial risks: market risk (including interest rate risk and market price risk), credit risk, liquidity risk, capital risk and foreign exchange risk.

 

The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

 

(a)        Interest Rate Risk

The Company holds cash in several bank accounts, the returns on which are subject to fluctuations in market interest rates.  The exposure on cash balances held is not considered to have a material impact, so no sensitivity analysis has been performed.

 

Changes in interest rates may affect the performance of the swap contracts in which each cell is invested.  The Board and the Investment Manager monitor, but cannot control, interest rate risk.

 

(b)        Market Price Risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held.  It represents the potential loss the Company might suffer through holding market positions in the face of price movements.  The Investment Manager actively monitors market prices and reports to the Board as to the appropriateness of the prices used for valuation purposes.  On a periodic basis independent valuations of the Company's investments are obtained from the Calculation Agent.  A list of investments held by the Company is shown in the Schedule of Investments on pages 48 to 49.

 

The Investment Manager also monitors on a monthly basis the market price risk of each Cell's underlying financial assets and liabilities using statistical measures, such as Delta.  Delta is the percentage change in price of a derivative in relation to a 1% change in the price of the underlying security, index or rate.  As there is no secondary market for the Company's investments, the Board cannot directly monitor nor control market price risk.

 



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(b)        Market Price Risk (continued)

 

Price sensitivity

If market prices as at 30 April 2014 / 31 October 2013 had been 10 per cent higher / lower, and assuming these values were to remain unchanged through to the end of the life of the cells, with all other variables held constant, the increase / decrease in net assets attributable to holders of Cell Shares on the Redemption Date would have been as stated below, arising due to the increase / decrease in the fair value of the financial assets at fair value through profit or loss.

 


Increase in net assets attributable to holders of Preference Shares


Decrease in net assets attributable to holders of Preference Shares










Period ended

30 April 2014


Year ended 31 October 2013


Period ended 30 April 2014


Year ended 31 October 2013

Cell

GBP


GBP


GBP


GBP









EPR Cell

-


2,387,949


-


(2,387,949)

EMB3 Cell

4,942,892


4,925,140


(4,942,892)


(4,925,140)

UK EI Cell

5,598,364


5,486,911


(5,598,364)


(5,486,911)

COMAC Cell

3,078,173


3,178,574


(3,078,173)


(3,178,574)

USEI A Cell

4,172,757


4,479,155


(4,172,757)


(4,479,155)

USEI B Cell

3,835,297


3,864,177


(3,835,297)


(3,864,177)










21,627,483


24,321,906


(21,627,483)


(24,321,906)

 

(c)        Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.  At the date of this report the Counterparty was rated A+ by Standard & Poor's for credit purposes.

 

Investors should be aware that repayment by the Company at the relevant redemption date of the redemption proceeds due to shareholders will only be performed if the Counterparty satisfies its obligations under the relevant contract to repay to the Company any amount due.  Under the terms of the Credit Support Deeds between the Company and the Counterparty, the Counterparty is required to deliver varying amounts of collateral to an escrow account held in favour of the Company.

 

Under the terms of the 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 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 value calculated as specified below (the "Credit Support Amount"), the Counterparty will provide additional collateral to increase the aggregate value to at least the 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 against the Counterparty its security over the collateral.



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(c)        Credit Risk (continued)

 

Due to the collateral being monitored on a weekly basis (as detailed above), there is a risk due to timing, that the amount posted to collateral will be less than the Credit Support Amount.

 

The Credit Support Amount is the lesser of (a) 100% of the net asset value of the relevant cell and (b) the total of the Applicable Percentage of such net asset value plus 10% of such net asset value (where the "Applicable Percentage" is calculated so as to reflect the percentage of shares in the relevant cell held at the relevant time by shareholders other than BNP Paribas Arbitrage SNC).

 

The most significant concentration of credit risk for the Company is that the Counterparty will be unable to satisfy its obligations under the relevant contract to repay to the Company any amount due.  The maximum credit risk exposure at the reporting date is therefore considered to be the total valuation of the investments at this date, being £216,274,840 (Oct 2013: £243,219,046).

 

The Investment Manager and Administrator monitor collateral posted on a weekly basis and report to the Board quarterly on the Counterparty's compliance with the relevant Credit Support Deeds.  The Investment Manager and Administrator have also undertaken to report to the Board immediately if there is a breach of compliance with the terms of the relevant Credit Support Deeds.

 

The Board monitors, but cannot control, credit risk.

 

(d)        Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments and obligations to shareholders on redemption of their shares of a cell.  The only financial commitments of the Company are to meet ongoing expenses and these are met out of monies provided to the Company's Administrator by BNP.

 

There is a further liquidity risk in respect of the redemption of shares, the dates of which are set out in note 6 (g) (ii).

 

As the investments are not traded in an active market, the Company may not be able to liquidate quickly its investments in these instruments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the credit worthiness of the Counterparty.

 

 

 

 

 

 



Harewood Structured Investment PCC Limited

Notes to the Financial Statements (continued)

for the period ended 30 April 2014

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(d)        Liquidity Risk (continued)

 

The table below details the residual contractual maturities of the financial liabilities:

 


1 - 3 months


3 - 12 months


Over 1 year


Total


GBP


GBP


GBP


GBP

As at 30 April 2014








Net assets attributable to holders of Management Shares

 

234,817


 

-


 

-


234,817

Net assets attributable to holders of Preference Shares

 

216,274,840


 

-


-


216,274,840


49,663,737

 


 

-


-

 


216,509,657

 









As at 31 October 2013








Net assets attributable to holders of Management Shares

 

263,128


 

-


 

-


263,128

Net assets attributable to holders of Preference Shares

 

-


 

73,130,881


 

170,088,165


243,219,046


 

263,128


 

73,130,881


 

170,088,165


243,482,174

 

The table below details the expected liquidity of assets held:

 


1 - 3 months


3 - 12 months


Over 1 year


Total


GBP


GBP


GBP


GBP

As at 30 April 2014








Net assets

 

216,509,657


 

-


 

-


216,509,657









As at 31 October 2013








Net assets

 

263,128


 

73,130,881


 

170,088,165


243,482,174

 

 

The Board monitors, but cannot actively control, liquidity risk.



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(e)        Capital Risk Management

The Company has an unlimited life but the Protected Cell Shares for each cell have a fixed redemption date.

 

The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders.

 

The Board of directors believes the current capital structure to be sufficient in meeting the capital requirements of the Company.

 

All expenses are borne by BNP and redemption proceeds are limited to the amounts received, if any, on the maturity or early termination of the relevant investment contract between the Company and the Counterparty.

 

Potential losses to shareholders are mitigated by the returns stipulated in the swap agreement with the Counterparty as described in note 6(h) and the collateral arrangements which are set out in note 6(i).

 

(f)         Foreign Exchange Risk

The carrying amounts of the Company's foreign currency denominated financial assets at the reporting date are as follows:

 


Period ended


Year ended


30 April 2014


31 October 2013


GBP


GBP

Assets




US Dollar

31,449,987


32,474,343

Euro

-


7,715


31,449,987


32,482,058

Liabilities




US Dollar

(621,219)


(619,447)





Net foreign currency assets

30,828,768


31,862,611

 

As subscription, redemption and dividend payments in respect of all cells are made in the same functional currency, none of the cells are exposed to foreign exchange risk.

 

 

 

 

 

 

 

 

 

 

 

Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(g)        Valuation

(i)  The notional amounts of the derivative instruments are as follows:

 

Energy - Base Metals (3)

GBP 49,587,600

Enhanced Income

GBP 39,999,346

UK Enhanced Income

GBP 49,015,722

US Enhanced Income - Class A

GBP 48,500,080

US Enhanced Income - Class B

USD 45,079,125

 

(ii)  The maturity dates of the derivative instruments are as follows:

 

Energy - Base Metals (3)

12 June 2014

US Enhanced Income - Class A

16 July 2029*

US Enhanced Income - Class B

16 July 2029*

UK Enhanced Income

24 September 2029*

Enhanced Income

30 March 2108*

 

*The maturity date of the existing cells at the date of signing has been brought forward to 15 September 2014 following the approval by the requisite majority of shareholders of a proposal for early redemption put forward by a majority shareholder of each existing cell.

 

 (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)  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.

 

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 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.

 



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(g)        Valuation (continued)

 

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 Applicable Percentage (as set out in note 6(c)) 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

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 2.20% of the notional amount of the Swap Confirmation, equivalent to 2.20 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

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(h)        Periodic Returns on Principal and Timings of Payments (continued)

UK Enhanced Income

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 2.00% of the notional amount of the Swap Confirmation, equivalent to 2.00 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 2.20% of the notional amount of the Swap Confirmation, equivalent to 2.20 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 2.00% of the notional amount of the Swap Confirmation, equivalent to 2.00 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 2.20% of the notional amount of the Swap Confirmation, equivalent to 2.20 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

 

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

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 2.00% 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 2.20% of the notional amount of the Swap Confirmation, equivalent to 2.20 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 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

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

 

6          FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(i)         Collateral Arrangements (continued)

The collateral held against all derivative instruments as at 30 April 2014 is detailed below:

 

Cell

Period ended


Year ended


30 April 2014


31 October 2013


GBP


GBP





EPR

-


12,096,642

EBM (3)

11,645,796


11,511,139

US EI

21,989,390


22,821,910

UK EI

7,986,020


8,969,878

EI

9,662,156


9,353,130

 

(j)         Finance Costs and Expenses

All payments by the Company are made in Sterling, except that the Investment Manager's fees in respect of US Enhanced Income are paid in US Dollars.

 

As detailed in Note 1(b), all expenses are borne by BNP and recognised in the Statement of Comprehensive Income.

 

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.

 

7          RELATED PARTY TRANSACTIONS

 

Anson Registrars Limited is the Registrar of the Company.  John R Le Prevost is a director of Anson Registrars Limited.  During the period under review, the Registrar charged fees of £7,580 (Apr 2013: £12,302) in respect of registration services on behalf of the Company of which £1,014 (Oct 2013: £872) was outstanding at the period end.

 

Anson Group Limited ("AGL") is the parent company of Anson Registrars Limited.  John Le Prevost is a director of AGL.  John R Le Prevost is also the beneficial owner of AGL.

 

THEAM (the Investment Manager) and BNP Paribas Arbitrage SNC, the Company's ultimate controlling party, are both members of the BNP Paribas Group.

 

During the period under review the Investment Manager charged fees of £169,346 (Apr 2013: £175,741), of which £nil (Oct 2013: £19,308) was outstanding at the period end.

 



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

7          RELATED PARTY TRANSACTIONS (continued)

 

As described elsewhere in the Financial Statements, BNP, a member of the BNP Paribas Group, was appointed as Distributor of Preference Shares in all the cells and is also the counterparty to the Index Derivative Contracts entered into by the Company on behalf of all cells.  All these transactions and arrangements have been entered into on an arms length basis.  At the end of the period the Group and its subsidiaries held the following shares in issue:

 


As at




As at




30 Apr 2014


% of total


31 Oct 2013


% of total


Shares


shares


Shares


shares

EPR Cell

-


0.00%


18,895,854


62.72%

EBM3 Cell

44,015,668


88.76%


43,933,610


88.60%

EI Cell

35,039,125


87.60%


34,967,125


87.42%

USEI A Cell

42,685,523


88.01%


42,487,523


87.60%

USEI B Cell

40,031,227


88.80%


36,594,677


81.18%

UK EI Cell

45,585,395


93.00%


44,712,395


91.22%

 

As detailed in Note 8, on 20 March 2014 BNP Paribas Enhanced Property Recovery Shares were compulsorily redeemed and BNP Paribas Enhanced Property Recovery was subsequently dissolved.

 

 

ONGOING EXPENSES

Period ended


Period ended


30 Apr 2014


30 Apr 2013


TOTAL


TOTAL


GBP


GBP





Administration fees

51,327


76,792

Directors' remuneration

15,000


15,000

Registration fees

7,580


12,302

Custody fees

19,258


31,451

Asset management fees

169,346


175,741

Tax fees

(8,200)


21,650

Audit fees

17,134


41,198

Annual fees

6,915


10,565

Foreign exchange differences

3,134


(6,327)

Other operating expenses

8,635


6,309


290,129


384,681

 

All expenses are accounted for on an accruals basis through the Statement of Financial Position and are borne by BNP Paribas SA.



Harewood Structured Investment PCC Limited

Notes to the Financial Statements

for the period ended 30 April 2014 (continued)

 

8          REDEMPTION OF SHARES

 

During the period, Enhanced Property Recovery Cell reached its redemption date.  Therefore all Enhanced Property Recovery Cell Preferences Shares in issue were compulsorily redeemed.

 

The redemption value per Enhanced Property Recovery Preference Share was 79.81 pence, resulting in redemption proceeds and distributions to the holders of Enhanced Property Recovery Preference Shares £24,041,302.  The net realised loss on the redemption was £6,083,698.

 

9          ULTIMATE CONTROLLING PARTY

 

The ultimate controlling party is BNP Paribas Arbitrage SNC, as holder of the two Ordinary Shares in issue.

 

10         SUBSEQUENT EVENTS

 

On 12 June 2014 all Energy - Base Metals (3) Cell Preference Shares in issue were compulsorily redeemed. 

 

The redemption value per Energy - Base Metals (3) Preference Share was 100.00 pence, resulting in redemption proceeds and distributions to the holders of Energy - Base Metals (3) Cell Preference Shares of £49,577,600.  The net realised gain on the redemption was £295,500.

 

The Board received a request from a majority shareholder to propose the early redemption of the preference shares in all the existing cells as at the date of signing, being Enhanced Income Cell, UK Enhanced Income Cell, US Enhanced Income Cell - Class A and US Enhanced Income Cell - Class B. 

 

On 9 July 2014, the Board considered the proposal and resolved to contact shareholders setting out the proposal for early redemption.  On 6 August 2014 letters had been sent out to all shareholders detailing the proposal and seeking their written consent. The shareholders have been advised in the letter that the majority shareholder who holds more than 75% of the shares in each cell intends to approve the proposed early redemption and as such is sufficient to approve the proposal.

 

On 15 August 2014 the Company received the written consent of the requisite majority of shareholders in each of the existing cells. On 22 August 2014 a Written Special Resolution was passed by the sole member of the Company to effect the termination of all the existing cells. The redemption dates of all cells have therefore been brought forward to 15 September 2014.

 

 


Harewood Structured Investment PCC Limited

SCHEDULE OF INVESTMENTS

as at 30 April 2014

 


As at 30 April 2014

 


NOMINAL


VALUATION


TOTAL NET ASSETS




GBP


%

Enhanced Property Recovery

BNP Paribas Index Derivative Contract

 

 

GBP 30,125,000


 

 

-


 

 

0.00%

Energy - Base Metals (3)

BNP Paribas Index Derivative Contract

 

 

GBP 49,587,600


 

 

49,428,920


 

 

22.85%







Enhanced Income

BNP Paribas Index Derivative Contract

 

GBP 39,999,346


 

38,352,973


 

17.73%







UK Enhanced Income Cell

BNP Paribas Index Derivative Contract

 

GBP 49,015,722


 

41,727,574


 

19.29%







US Enhanced Income Cell - Class A






Sterling Hedged






BNP Paribas Index Derivative Contract

GBP 48,500,080


55,983,642


25.89%







US Enhanced Income Cell - Class B






US Dollar Unhedged






BNP Paribas Index Derivative Contract

USD 45,079,125


33,781,731


14.24%







TOTAL



216,274,840


100.00%

 

 



Harewood Structured Investment PCC Limited

SCHEDULE OF INVESTMENTS

as at 31 October 2013

 


As at 31 October 2013

 


NOMINAL


VALUATION


TOTAL NET ASSETS










GBP


%







Enhanced Property Recovery

BNP Paribas Index Derivative Contract

GBP 30,125,000


23,879,485


9.82%







Energy - Base Metals (3)

BNP Paribas Index Derivative Contract

GBP 49,587,600


49,251,396


20.25%

Enhanced Income Cell

BNP Paribas Index Derivative Contract

 

GBP 39,999,346


 

38,641,748


 

15.89%

UK Enhanced Income Cell

BNP Paribas Index Derivative Contract

 

GBP 49,015,722


 

44,791,547


 

18.42%

US Enhanced Income Cell - Class A Sterling Hedged

BNP Paribas Index Derivative Contract

 

 

GBP 48,500,080

 

 

 

 

54,869,111


 

 

22.55%

US Enhanced Income Cell - Class B US Dollar Unhedged

BNP Paribas Index Derivative Contract

 

 

USD 45,079,125


 

 

31,785,739


 

 

13.07%













TOTAL



243,219,046


100.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harewood Structured Investment PCC Limited

DIRECTORS AND SERVICE PROVIDERS

 

Directors

Francois-Xavier Foucault

John Reginald Le Prevost

Trevor Hunt

Youri Siegel

 

Investment Manager

THEAM

1 Boulevard Haussmann

75009-Paris

France

Administrator and Secretary

JTC (Guernsey) Limited

PO Box 156

Frances House, Sir William Place,

St. Peter Port

Guernsey GY1 4EU

 

Solicitors to the Company (English Law)

Clifford Chance LLP

10 Upper Bank Street

London E14 5JJ

England

 

Independent Auditors

PricewaterhouseCoopers CI LLP

Royal Bank Place

1 Glategny Esplanade

St. Peter Port

Guernsey GY1 4ND

 

Advocates to the Company (Guernsey Law)

Mourant Ozannes

1 Le Marchant Street

St. Peter Port

Guernsey GY1 4HP

 

Custodian

BNP Paribas Securities Services, Luxembourg Branch

33, Rue de Gasperich

Howald-Hesperange

L-2085 Luxembourg

Registrar, Transfer Agent & Paying Agent

Anson Registrars Limited

Anson House

Havilland Street

St Peter Port

Guernsey GY1 2QE

 

Investment Counterparty

BNP Paribas

10 Harewood Avenue

London NW1 6AA

England

Registered Office

PO Box 156

Frances House

Sir William Place

St Peter Port

Guernsey GY1 4EU

 

 


Shares of all cells are listed on the Channel Islands Securities Exchange Authority Limited and may be dealt in directly through a stockbroker or professional adviser acting on an investor's behalf.  The buying and selling of such shares may be settled through CREST.  Announcements to holders of such shares and daily market closing prices are available on Bloomberg, Reuters and the Channel Islands Securities Exchange Authority Limited's web-site.

 

Further information relating to such shares is available from BNP Paribas, telephone 44 (0)207 595 8442 or e-mail [email protected], and from JTC  (Guernsey) Limited, telephone +44 (0)1481 702400 or e-mail: [email protected].

 

REGISTRAR ENQUIRIES

 

The Company's registrar is Anson Registrars Limited in Guernsey and they can be contacted on telephone 44 (0)1481 711301.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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