PRINCIPAL PROTECTED NOTES
Ping Hu
Matt Neeve
Olena Olenchuk
Principal Protected Notes - what are they?
• An investment that guarantees a percentage
of the principle at maturity
i.e. the minimum return will equal the initial investment
• Payoff at maturity - no coupons, principal + appreciation
Principal Protected Notes - what are they?
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Principal protection
High growth potential
Enhanced income potential
Weekly liquidity
The opportunity to invest in a broad range of investments
Potential for leveraged returns
Capital protection regardless of what happens in the markets
Maturity 6-8 years
Principal Protected Notes - what are they?
Benefits to the Issuer:
• Liquidity
• Financial leverage
• “Callability” strategy – reduced debt when needed
Global Equity Index Linked Note
• Issued by the Business Development Bank of Canada
• Variable interest promissory
• Equally weighted in three indexes:
S&P 500
Dow Jones ERUO STOXX 50
Nikkei 225
Global Equity Index Linked Note
• Dec 2000 issues – minimum issue of 10 million
dollars with a 7- year maturity.
• Each note is valued at 10 dollars (at the time of issue)
Risks:
• Market Risk
• Inflation Risk
Global Blue-Chip Rainbow
Deposit Notes, Series 1
• A portfolio of 5 Baskets
of shares
• Each Basket consists of
3 shares, equally-weighted
within the Basket.
• Note term is 7 years
Global Blue-Chip Rainbow
Deposit Notes, Series 1
• The return is linked to the performance of the portfolio
• Amounts payable at the maturity consist of
1. The principal amount - $100/note regardless
of the portfolio performance
2. Variable interest – 100 * portfolio return
• The Deposit Notes will not be listed on any exchange
• Tax consideration
Global Blue-Chip Rainbow
Deposit Notes, Series 1
Nikkei 225 Index Note, Series 1
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Linked to Nikkei 255 Index – Tokyo Stock Exchange, Japan
Note term - 7 years
$100 denominated
Minimum subscription - 50
Not listed - trade on secondary markets
Callable if Index Return equals or exceeds applicable Call Trigger
Call feature – risk
• 2006 – 2007 Index Return 3.06%
Nikkei 225 Index Note, Series 1
Nikkei 225 Index Note, Series 1
Index Performance
Nikkei 225 Index Note, Series 1
Nikkei 225 vs. S&P 500, Dow and NASDAQ
Principal Protected Notes
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Suitability of Deposit Notes for Investment
Non-Conventional Investment
No Interest May Be Payable
No Ownership of, or Recourse to, Shares
Equity Risk
Secondary Market
Market Disruption or Extraordinary Event
Special Circumstances – Market disruption
Economic and Regulatory Issues
PPNs - Who would use them?
• Risk adverse investors that want to protect their
investment, but still capitalize on positive changes in
the market.
• Investors that are confident in the market, but still
believe that there is speculation
Questions?