(LF) Special Purpose Equity Formula Index II Fund

Investment Objective

The Sub-Fund aims mainly to provide capital growth in line with a systematic strategy on a selected equity indices as described below (the “Derivative Investment Strategy”), bank deposits, money market instruments and an actively managed portfolio of transferable debt securities, including fixed and variable interest rate securities and government bonds admitted to an Official Listing or dealt in on a Regulated Market, traded worldwide.

The Derivative Investment Strategy commences on March 26, 2019 and matures on March 26, 2029 (the “Investment Period”).

The Derivative Investment Strategy’s performance at the end of the Investment Period is based on a performance valuation mechanism according to points a), b), c), and d) below:

  • a) The Equity Indices: EURO STOXX 50 (Bloomberg ticker: SX5E Index), NIKKEI 225 (Bloomberg ticker: NKY) and S&P 500 (Bloomberg ticker: SPX Index) are selected.

The EURO STOXX 50 (Index A) index tracks the 50 largest in terms of market capitalization and most liquid Super sector leaders in the Euro-zone. Source: http://www.stoxx.com/download/indices/rulebooks/stoxx_indexguide.pdf (page 45).

The S&P 500 index (Index B) includes 500 leading companies and captures approximately 80% coverage of available US market capitalization. https://us.spindices.com/indices/equity/sp-500

The NIKKEI 225 index (Index C) is used globally as the premier index of Japanese stocks. The Nikkei 225 is a price-weighted equity index, which consists of 225 stocks in the 1st section of the Tokyo Stock Exchange. https://indexes.nikkei.co.jp/en/nkave/index/profile?idx=nk225

  • b) March 26, 2019 is defined as the “Derivative Investment Strategy Initial Observation Date” or “Strike Date”, March 26, 2029 is defined as “Derivative Investment Strategy Final Observation Date”, and April 11, 2029 is defined as “Derivative Investment Strategy Termination Date”.
  • c) If for at least one index from Indices A, B and C its closing level on the Final Observation Date is lower than its closing level on Initial Observation Date, then on the Derivative Strategy Termination Date the sub-fund gains an amount equal to 6.75% on the Derivative’s Strategy outstanding notional amount on that date.
  • d) Otherwise, i.e. if for all Indices A,B and C their closing levels on Final Observation Date are equal to or greater than their corresponding closing levels on Initial Observation Date, then on the Derivative Strategy Termination Date the sub-fund gains 26.5% on the Derivative’s Strategy outstanding notional on that date.

The investors are informed that the payout for the investors is not only depending on the performance of the Derivative Investment Strategy (as shown above), but also depends on the performance of the Investment Portfolio (as defined under section 2.2).

Therefore, the investors’ return may end up being lower than indicated under points c) and d) or even turn negative in case where the Investment Portfolio has materially underperformed.

The Index A, B and C used by the Sub-Fund within the meaning of the Regulation (EU) 2016/1011 (“Benchmarks Regulation”), is being provided by administrators which are, at the time of the present Prospectus, not yet included in the register referred to in article 36 of the Benchmarks Regulation as they are currently relying on the transitional period as explained in article 51 of the Benchmark Regulation. This information shall be updated in the next version of the Prospectus as the case may be.

In accordance with the article 28(2) of the Benchmark Regulation, the Management Company has adopted a written plan setting out the actions to be taken with respect to the Sub-Fund in the event that the above mentioned indices materially change or cease to be provided. This written plan can be requested and obtained free of charge at the Management Company's registered office.

Investment policy

The Sub-Fund seeks to achieve its investment objective as follows:

  • - primarily, investing in a portfolio (the “Investment Portfolio”) composed of Greek Government debt securities, bank deposits, money market instruments, other European government debt securities, corporate dept securities, mortgage-backed securities and asset-backed securities. The Sub-Fund may not invest more than 20% of its assets in mortgage-backed securities and asset-backed securities. The Sub-Fund may invest more than 35% of its assets in Greek Government bonds.

    The maturities of the debt securities in the Investment Portfolio, will match as close as practically possible the maturity of the Swap (as defined in the next paragraph). Additionally the mix of debt securities will be picked, to ensure that the income they provide is at least sufficient to cover the funding costs of the Swap plus the other expenses of the Sub-Fund. As a base-case scenario it is nevertheless not expected that the Investment Portfolio will contribute more to the performance of the Sub-Fund at maturity than covering the aforementioned costs and expenses.
  • - secondarily, entering into, one or several, over-the-counter derivative transactions called Equity linked swap agreements under ISDA (the “Swaps”) with the aim of meeting the Investment Objective. The effect of this transaction is that the Sub-Fund exchanges part of the returns on its portfolio for returns specifically tailored to the Investment Objective of the Sub-Fund.

The swap counterparty/ies will be selected from the following credit institutions: Barclays Bank PLC; BNP Paribas S.A.; Deutsche Bank A.G.; JPMorgan Chase Bank N.A.; Royal Bank of Scotland PLC; Société Générale S.A., Eurobank Ergasias S.A., Credit Agricole S.A., HSBC Bank PLC, Credit Suisse, UBS AG, Bank of America Merrill Lynch, Citigroup Global Markets Ltd, Morgan Stanley & Co International PLC.

The name(s) of the swap counterparty/ies and the signed Swaps will be made available for inspection, upon investor(s) request, during normal business hours at the registered office of the Management Company.

The swap counterparty/ies pay to or receive from the Sub-Fund during the Investment Period amounts described in the Swaps; payment flows will contribute to realization of the Derivative Investment Strategy.

The Net Asset Value of the Sub-Fund, and therefore the value of the Sub-Fund’s Units will increase (or decrease) in line with the valuation of both the portfolio of securities and the Swaps. The Swaps’ aggregate notional amount will on Strike Date correspond to the Sub-Fund’s Net Asset Value and will be adjusted on an ongoing basis based on the applicable valuation of the Swaps provided on a daily basis by the swap counterparties to take into account subscription and redemption requests in the Sub-Fund.

The ability of the Sub-Fund to meet its Investment Objective is dependent on the ability of the swap counterparty/ies to meet their obligations under the Swaps. Also, the aforementioned ability of the Sub-Fund to meet its Investment Objective is dependent on the performance of the Investment Portfolio (i.e. the investors could materialize a loss on their capital in the case of issuers’ defaults in the Investment Portfolio or a in the case of a significant drop in the prices of the holdings of the Investment Portfolio).

Liquidities may be used within the limits described in sections 3.1. and 4. of this Prospectus.

The Directors will decide before maturity of the Derivative Investment Strategy, whether the Sub-Fund will be liquidated, prolonged for a new term with a new investment objective and policy (in which case the prospectus will be amended accordingly) or contributed to another Sub-Fund of the Fund. Unit holders will be informed accordingly in due course. Should the Directors decide that the Sub-Fund will be prolonged for a new term or contributed to another Sub-Fund of the Fund, Unit holders will be offered a one month period during which they will have the possibility to redeem their Units free of charge before such changes become effective.

Profile of investors

The Sub-Fund has a high-risk profile, mainly associated with the use of financial derivative instruments, linked to equity exposure. Investors should also consider the fact that the capital invested is potentially at risk. The Sub-Fund is addressed to investors with a long-term investment horizon and who are seeking return from exposure to equity and fixed income markets.

KID Eurobank I (LF) Special Purpose Equity Formula Index II Fund
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