FALCOM SUKUK FUND (the FUND ) TERMS & CONDITIONS

Transcription

1 In the Name of Allah, The most Gracious, The most merciful THE CAPITAL MARKET AUTHORITY (CMA) TAKES NO RESPONSIBILITY FOR THE ACCURACY OF THE STATEMENTS AND INFORMATION CONTAINED IN THESE TERMS & CONDITIONS OR FOR THE PERF- FORMANCE OF THIS FUND, NOR SHALL THE AUTHORITY HAVE ANY LIABILITY TO ANY PERSON, AN INV- VESTOR OR OTHERWISE, FOR ANY LOSS OR DAMAGE RESULTING FROM RELIANCE ON ANY STATEMENT OR INFORMATION CONTAINED HEREIN. FALCOM SUKUK FUND (the FUND ) SAUDI RIYAL [An open-ended collective investment scheme registered under the Laws of the Kingdom of Saudi Arabia] TERMS & CONDITIONS THE DIRECTORS OF THE FUND, WHOSE NAMES APPEAR HEREIN, ACCEPT RESPONSIBILITY FOR THE INF- FORMATION CONTAINED IN THESE TERMS & CONDITIONS. TO THE BEST OF THE KNOWLEDGE AND BEL- LIEF OF THE DIRECTORS, WHO HAVE TAKEN ALL REASONABLE CARE TO ENSURE THAT SUCH IS THE CASE, THE INFORMATION CONTAINED IN THESE TERMS & CONDITIONS IS IN ACCORDANCE WITH THE FACTS AND CONTAINS NO OMISSION LIKELY TO AFFECT THE INFORMATION AND COMPLETENESS OF THE SAME. Prospective Investors and Recipients of these Terms & Conditions are advised to carefully review these terms and conditions, take the advice of their professional advisers and should inform themselves about and observe any applicable legal requirements. The date of these Terms & Conditions 14/10/2007 Updated on 04/04/2009

2 IMPORTANT NOTICE TO INVESTORS (Whenever the context requires, any gender used in this Prospectus will include all others, the singular will include the plural, and vice versa.) These Terms & Conditions are furnished to Investors primarily in the Kingdom of Saudi Arabia so that they may consider the opportunity to purchase Units in the Fund. Hence, prospective investors are requested to carefully read these terms and conditions prior to taking any decision to invest in the Fund. Investing in the Fund involves a moderate degree of risk. The Fund is an open-ended collective investment scheme designed for Investors seeking an income on their investments, capital growth with relatively high degree of invested capital preservation, by investing in high quality Sukuk certificates in local or regional markets. Investors should nonetheless be acquainted with risk factors that have been detailed under the Risk Factors section of these terms and conditions. Prospective Investors should also be able to bear the economic risks of their investments in the Fund, including all or part thereof, and should not be dependent upon any returns from such investments for any basic financial needs. The Fund is an-open ended Fund that represents a contractual relationship between the Fund Manager and the Underlying Investors, based on the Sharia Agency Contract, registered under the Capital Market Authority ( CMA ) and governed by the terms of the Investment Funds Regulations issued by the CMA, as amended and any other Directions in this regard. The CMA has approved this Fund pursuant to its approval letter dated 14/10/2007. The contents of these Terms and Conditions should not be construed as investment, legal or tax advice. The information provided by the Fund Manager does not constitute an offer, solicitation of Units or an advice to purchase Units in the Fund. Each potential Investor must seek independent investment, legal and tax advice with respect to the implications of investing in the Fund. Sale or transfer of Units will only be honoured and executed by the consent of the Fund Manager. The business of the Fund shall at all times be conducted in accordance with the Sharia guidelines. Sukuk Certificates are an Islamic product that comply with the Sharia guidelines. The payment of Zakat shall remain the sole responsibility of the Investors. The Fund Manager or the Fund shall not calculate, pay or be responsible for calculation or payment of Zakat on the Investor s investment or on any capital appreciation derived therefrom. All the information in this document of Terms & Conditions is given as of the date hereof, unless expressly otherwise specified herein. These Terms & Conditions are the lawful property of the Fund Manager. Hence, this document may not be distributed or copied, as a whole or in part, nor may any of its contents be disclosed without prior written permission from the Fund Manager. II

3 FUND GUIDELINES Fund s Name FALCOM SUKUK FUND (Saudi Riyal) Fund Manager, Investment Manager & Placement Agent FALCOM Financial Services Head Office Falcom Financial Services King Fahad Street P.O.Box 884 Riyadh Tel: +966 (1) Fax: +966 (1) legal advisor White and Case (Law office of Mohammed A. Al-Sheikh) P.O.Box 17411, Riyadh Saudi Arabia Custodian FALCOM Financial Services External Auditor KPMG Riyadh, Olyan Building, Al-Ahsa St. P.O. Box Riyadh Tel +966(1) III

4 FUND SUMMARY Fund Currency: Saudi Riyal Risk Tolerance: Moderate Benchmark: FALCOM Internal Sukuk Index Investment Strategy: Invest in Medium to Long term Sukuk that enjoy a relatively high degree of capital preservation and competitive returns Payment of Redemptions: 4 business days from valuation date Placement Fee: 0.50% of subscription amount. Management Fee: 1% of Net Asset Value (NAV) per annum. Custodian Fee: 0.50% of NAV annually Minimum Participation: SR. 100,000 for Individuaals and SR. 500,000 for Institutions Minimum Additional Subscription & Redemption: SR. 25,000 Date of receiving Subscription and Redemption Forms: Each business day in the Kingdom of Saudi Arabia Sharia Advisory Fee: 0.25% of NAV annually External Auditor Fee: SR. 22,000 annually Redemption Fee: 0.50% of redeemed amount (if redeemed within 3 months of purchase of Fund units) Placement Date: 14/10/2007 Valuation Day: Each Monday Initial Unit Price: SR. 1,000 Days of Valuation and Announcement: Weekly, valuation can be obtained from Fund Manager s offices or on publications IV

5 Table of Contents Definitions 1 Fund s Terms & Conditions 2 Name of the Investment Fund 2 Address of Investment Manager 2 Date of Commencement 2 Regulator 2 Date of Terms & Conditions Issuance 2 Participation 2 Currency of the Fund 2 Unit Price 3 Fund Objectives 3 Investment Strategy 3 Benchmark 4 Principal Risk 4 Fees & Expenses 7 Dealing Cost 7 Fund Board 7 Fund Manager 8 Annual Audited Financial Statement 9 Characteristic of Units 9 Member of the Shariah board of Fund 9 Initial Offer 10 Investment by the Fund Manager in the Fund 11 Subscription & Redemption Procedure 11 Valuation of the Asset of the Fund 11 Winning up and oppointment of a liquidator 12 Termination 12 Reporting to Unit Holders 12 Conflict of Interest 12 Amendment of Terms & Conditions 12 Complain Procedure 12 Governing Law 13 Compliance with Regulations 13 Appendix (1) 14 Cantinuing Appendix (1) 15 Custodian 9 Auditor 9 V

6 DEFINITIONS The Fund Fund Manager Underlying Asset Initial Offering Period Commencement Date Custodian Sukuk Transactions Investment Manager Placement Agent Business Day Valuation Date Date of Distributions Unit Holders Terms & Conditions Participants Investors Regulator Board of Directors FALCOM Sukuk Fund (Saudi Riyal). FALCOM Financial Services. Underlying Assets consist of Sukuk Certificates that represent invested or any other assets that are managed by the Fund for the interest of the unit holders. The date of initial offering of the Fund s units for participation at par value. The date of commencement of operations by the Fund that succeeds the closing of initial offering period. FALCOM Financial Services. The party authorized to retain the Fund s underlying assets of the Sukuk Certificates or any other underlying rights. Sukuk Certificates being certificates with equivalent value that represent undivided ownership in an underlying asset, usufruct, concession, finan cialliabilities or an asset of certain project that comply with Sharia guidelines. Financial transactions executed by the Fund Manager within the frame work of the Fund s investment strategy to achieve its objectives. FALCOM Financial Services. FALCOM Financial Services. Each day on which banks are open for business and settlement of trans actions in the Kingdom of Saudi Arabia. The day on which the Net Asset Value of the Fund is determined. The date that determined by the Fund Manager for conducting periodic distributions out of the money available for distribution, if any, in pursu ant to the Terms and Conditions of the Fund. Holders of the FALCOM Sukuk Fund s units participating in pursuant to its terms and conditions. The Terms and Conditions of the FALCOM Sukuk Fund (Saudi Riyal) that govern its operations and are included herein. the Participants in the FALCOM Sukuk Fund (Saudi Riyal), holders of its units. the Participants in the FALCOM Sukuk Fund (Saudi Riyal) for investing purpose. Capital Market Authority in the Kingdom of Saudi Arabia. The Board, which undertakes the managerial and supervisory responsi bilities of the Fund; consisting of Chairman and Members whose names are disclosed in these Terms and Conditions. 1

7 TERMS & CONDITIONS 1. Name of the investment fund FALCOM Sukuk Fund (Saudi Riyal). 2. Address of the Fund Manager FALCOM Financial Services Head Office - Prince Mohammad Bin Abdul Aziz St. ( Al- Tahlia ) P.O. Box 884 Riyadh Tel (1) Fax +966 (1) Commencement The date for commencement of operations on 22/10/ Initial Offering Date Initial Public Offering date being 14/10/2007 to 21/10/ Regulator The Terms and Conditions of the Fund have been prepared in accordance with the provisions of the Investmment Funds Regulations issued by Capital Market Authority. Investment Funds are regulated by the Capital Market Authority and FALCOM is a licensed Asset Management company by virtue of the Capital Market Authority license No dated 29/4/1427 AH. 6. Date of issuance of the Terms and Conditions or last update The Terms and Conditions were issued on 14/10/2007 and updated on 04/04/ Participation The minimum participation amount is SR 100,000 (One hundred thousand Saudi Riyals) for Individuals and SR. 500,000 (Five hundred thousand Saudi Riyals) for Institutions. The minimum additional participation amount is SR 25,000 (Twenty five thousand Saudi Riyals). The minimum balance allowed is SR.100,000 for Individuals and SR. 500,000 for Institutions. The Fund Manager reserves the right to amend the minimum participation, at its discretion that preserves the interest of the Unit holders. 8. Currency of the fund Saudi Riyal is the Fund currency. If payment for units is made in a currency other than the denomination currency of the Fund (i.e., Saudi Riyals), the payment currency will be converted to the Fund s currency by the Fund Manager at the prevailing exchange rate. 2

8 9. Initial Unit Value SR. 1,000 in the initial offering period. Participation will be at Net Asset Value thereafter. 10. Investment fund objectives The Fund s investment objective is to provide long-term total returns of profit and capital growth. 11. Principal Investment Strategies The Fund offers investors the opportunity to invest with steady capital appreciation and relatively high degree of capital preservation of their investments. To achieve the Fund s objectives, the Fund Manager invests in medium to long-term Sukuk Certificates that have the potential to generate competitive returns and capital preservation. The Fund invests in high-quality Sukuk issued by governments and corporations in Saudi Arabia or other regional markets in currencies other than the Saudi Riyal. The Fund Manager will buy and sell Sharia compliant long term Sukuk issued by high net worth corporations that enjoy high rating scale from reputable institutions. Sukuk are negotiable certificates with the same value that represent undivided common ownership in an underlying asset, usufruct, concession, financial liabilities or an asset of certain project that comply with Sharia guidelines. Sukuk is a certificate evidencing a financial obligation. It is a tradable certificate that offfers a predictable return at relatively low risk that commensurate with the credit rating of the Sukuk and their issuer. Investment Approach: FALCOM Sukuk Fund will invest the majority of its assets in Sukuk investments. The Fund will also invest in money market instruments, Murabaha transactions and structured products. In the event of unfavorable market conditions, the Fund Manager may invest up to 100% of the Fund s assets in temporary defensive instruments by holding all or a substantial portion of its assets in cash, cash equivalents or other high quality short-term and medium-term investments including structured products. Investment Strategy: The Asset Management Team of the Fund Manager seeks to outperform the performance of the underlying index and to achieve the Fund s objectives, by : 1. Analyzing the overall trends of interest rates in Saudi Arabia, the United States and other major economies. 2. Analyzing potential changes in interest rate spreads between different segments of the Sukuk market (for instance, between corporate and government certificates or among different corporate certificates). 3. Anticipating change in interest rate spreads associated with a change in level of credit ratings. The Fund will implement the investment strategy gradually over a period of time. The Fund reserves the right to borrow funds in conformity with the Sharia guidelines and CMA regulations, if required. 3

9 All trading profits may be reinvested in the Fund, thus potentially increasing its unit price. The large size of the Fund s collective investments permits diversification and minimizing of overall portfolio risk. 12. Benchmark FALCOM Sukuk Fund gauges its performance against an internal Sukuk benchmark. This benchmark is compprised of Saudi Inter Bank Offering Rate (SIBOR) for three months, (in the absence of a long-term interest rate benchmark), The benchmark is based on the average bid and ask inter bank rates for three months on the Saudi Riyals in the Saudi market. If a more appropriate benchmark becomes available at a reasonable cost, the Fund Manager would use such a benchmark, subject to CMA approval. 13. Principle risks of investing in the Fund The Fund is considered to be a moderate risk investment because it invests and trades only in Sukuk Certificates, which are issued by corporations and governments with recognized credit rating and stable financial outlooks. An investment in an investment fund is not a deposit with any local bank sponsoring, selling or otherwise affiliaated with the investment fund. Unit holders bear the risk of loss of money by investing in the investment fund, except in case of proven negligence or abusive practice. Following risks may affect the value of your investment in the Fund: Credit Risk Credit risk is the possibility that a borrower or the counterparty to a contract either unable or unwilling to fulfill its obligation towards its financial commitments, either on time or at all. Companies and governments that borrow money, and the debt securities they issue, are rated by specialized rating agencies. A downggrade in an issuer s credit rating or other adverse news regarding an issuer can reduce a security s market value. Lower rated and unrated debt instruments generally offer a better return than higher grade debt instruments, but have the potential for substantial loss. Funds that invest in companies or markets with higher credit risk tend to be more volatile in the short term. However, they may offer the potential of higher returns over the long term. Currency Risk The Sukuk market is currently primarily denominated in US dollars and most Sukuk are issued in US dollars while the Fund s reference currency is Saudi Riyals. If the Fund purchases Sukuk in US dollars and receives US dollars as profit, there is exposure to exchange rate of Saudi Riyals versus US dollar. The investment could be worth more or less in Saudi Riyals in the case of a change in the peg to the US dollar. As a result, changes in the value of the Saudi Riyals compared to foreign currencies, including the US dollar will affect the value, in Saudi Riyals, of any foreign currency Sukuk held in the Fund. The Fund Manager may hedge currency risk in accordance with Islamic jurisprudence if the Fund Manager believes it is appropriate to do so. Interest Rate Risk in the general level of interest rates. If interest rates fall, the value of the Fund s units will tend to rise as Sukkuk prices are inversely related to interest rates. If interest rates rise, the value of the Fund s units will tend to fall. Depending on the Fund s holdings and overall portfolio duration, short-term interest rates can have 4

10 a different influence on the Fund s value than long-term interest rates. If the Fund invests primarily in Sukuk with longer-term maturities, the biggest influence on the Fund s value will be the potential changes in the general level of long-term interest rates. If the Fund invests primarily in Sukuk with shorter-term maturitties, the biggest influence on the Fund s value will be changes in the general level of shorter-term interest rates. If you are seeking current income, you should be aware that the level of profit income from the Sukuk Fund will fluctuate as short-term interest rates vary. Liquidity Risk Liquidity refers to the speed and ease with which an asset can be sold and converted into cash. The Fund will endeavor to invest in Sukuk that are liquid, can be sold easily and at a fair price. However, this may not always be the case. In highly volatile markets, such as in periods of sudden interest rate changes, certain securities may become less liquid, which means they cannot be sold as quickly or easily. Some securities may be illiquid because of legal restrictions, the nature of the investment, certain features, like guarantees or a lack of buyers interested in the particular security or market. Difficulty in selling securities may result in a loss or reduced return for the Fund. Market Risk Market risk is the risk of being invested in the Sukuk market. The market value of the Fund s investments will rise and fall based on specific company developments and broader fixed-income market conditions. Market value will also vary with changes in the general economic and financial conditions in Saudi Arabia. Inflation Risk Inflation causes tomorrow s Saudi Riyals to be worth less than today s; in other words, it reduces the purchasing power of the Sukuk future profit payments and principal, collectively known as cash flows. Inflation also leads to higher interest rates, which in turn leads to lower Sukuk prices. Call Risk Some corporate, municipal and agency Sukuk have a call provision entitling their issuers to redeem them at a specified price on a date prior to maturity. Declining interest rates may accelerate the redemption of a callable Sukuk, causing an investor s principal to be returned sooner than expected. In that scenario, investtors have to reinvest the principal at the lower prevailing interest rates, thus exposing them to reinvestment risk. Event Risk This is the risk that a Sukuk s issuer undertakes in a leveraged buyout, debt restructuring, merger or recapittalization that increases its debt load, causing its Sukuk values to fall, or intercepts with its ability to make timely payments of interest and principal. Event risk can also occur due to natural or industrial accidents or regulatory change. This risk applies more to corporate Sukuk than municipal or sovereign Sukuk. Reinvestment Risk This is based on the assumption that cash flows from a fixed-income security are reinvested, so that profit 5

11 can be earned on profit. This is the risk that the reinvested money will not earn the same rate of return as the original investment. This risk is contrary to interest rate risk, because when interest rates rise, market risk increases, but reinvestment risk declines. Thus, reinvestment risk helps to neutralize market risk. Issuer-specific risk The market value of an individual issuer s securities can be more volatile than the market as a whole. As a result, if a single issuer s securities represent a significant portion of the market value of the Fund s assets, changes in the market value of that issuer s securities may cause greater fluctuations in the Fund s unit value than would normally be the case. In particular, the Fund may not be able to easily liquidate its position in the issuer as required to fund redemption requests. Large Investor Risk Units of the Fund may be purchased and sold by large investors, including other mutual funds and investmment portfolios ( large unitholders ). If a large unitholder redeems a portion or all of its investment from the Fund, the Fund may have to incur capital gains and other transaction costs in the process of making the redemption. In addition, some securities may have to be sold at unfavourable prices, thus reducing the Fund s potential return. Conversely, if a large unitholder were to increase its investment in a Fund, that Fund may have to hold a relatively large position in cash for a period of time while the Fund Manager attempts to find suitable investments. This could also negatively impact the performance of the Fund. Political and Economical Risks The Sukuk that are issued in the developing countries are more volatile than other Sukuk, particularly, when these countries are more unstable and their futures are unpredictable. As such, the Sukuk prices are expected to witness sharp volatility in pursuant to the developments in the economies or issuers rating in these countries. Legal Risk A particular form of risks associated with the jurisdictions of countries where the Sukuk are issued and the Fund makes its investments or the events that are occurred therein. Such events that may affect the Sukuk performance are nationalization of issuers, changes in the custom regulations or applying restrictions on cross boarder cash flows. Disclosure Risk Many countries, especially emerging countries, lack adequate laws as pertaining to financial disclosures or accounting rules. It can be difficult to assess the true creditworthiness of the Sukuk issuer. Disclosure risk results from this lack of disclosure about an issuer or accounting rules that don t adequately reflect the true financial status of the issuer. We will endeavor to mitigate this risk by conducting due diligence, but this risk cannot completely be eliminated subject to the market conditions. 14. Fees and expenses 6

12 The Fund Manager will charge the Fund an annual management fee calculated as a percentage of the net asset value of the Fund annually, as disclosed in the Appendix (1) of these Terms & Conditions. Managemment Fee shall be calculated on a daily basis and will be payable each quarter. The Fund Manager reserves the right to redeem from the Fund, at any time, any charges, taxes, commissions, legal fees, pre-establishmment/operation expenses and other expenses borne by the Fund in relation to the Fund s management, in compliance with CMA rules. The Fund also bears its own annual operating expenses. 15. Dealing costs Transactions pertaining to the investments of the Fund, in underlying assets, are booked at cost. Any dealiing cost, therefore, will be paid out of Fund assets. 16. Board of Directors 1. Adeeb Al-Sowailim (Chairman, Board of Directors) Mr. Adeeb is currently the Chief Executive Officer of FALCOM Financial Services, with above 15 years of experience in the banking and investment management industry. Formerly, Mr. Adeeb worked with SAMBA and Banque Saudi Fransi. Mr. Adeeb holds a Bachelor of Law degree from King Saud University, Riyadh, Saudi Arabia. 2. Saleh Abdullah Al-Henaki (Interested Member of the Board). Mr. Saleh is currently Head of Asset Manaagement, with above 14 years of practical knowledge in investment banking, leasing and insurance with the Saudi Monetary Agency (SAMA), Al Rajehi Bank and FALCOM Financial Services. Mr. Saleh holds a Bachelor of Arts in Quantitative Methods from King Saud University in Riyadh, Master Degree of Arts in Economiics from University of Colorado in 1998 and a Master Degree of Financial and Actuarial Mathematics from University of Michigan in Ata Al-Bayouk (Independent Director). Mr. Ata enjoys over 40 years in the accounting and auditing proffession. He is a practicing Chartered Accountant and consultant. He is a Member of Institute of Chartered Accountants in England and Wales. He holds a B.Com in Accounting and Business Administration, King Saud University, Riyadh, Saudi Arabia. 4. Fahad Al-Musabahi (Independent Director). Mr. Al-Musabahi has over 19 years of diversified experience in finance, budgeting and cost control. Presently, Mr. Fahad is Financial Advisor to Saudi Oger Group. He holds a B.S. in Accounting from King Saud University. Mr. Fahad is a member of the Saudi Accounting Asssociation (S.A.A.) and a member of the Saudi Organization for Certified Public Accountants (S.O.C.P.A.) For Independent Directors, the remuneration will be SR. 3,000 per meeting, with a cap of SR. 5,000 per month in case there are more than one meeting in a month. The Fund s Board Members are the same Board Members of the following Funds: 7

13 FALCOM Saudi Riyal Murabaha Fund. FALCOM Saudi Equity Fund. FALCOM US Dollar Murabaha Fund. FALCOM Euro Murabaha. The Fund directors responsibilities shall include the following: (1) Approval of all material agreements, decisions and reports where the Fund will be involved. (2) Oversee and, where appropriate, ratifying any conflicts of interest the Fund Manager has identified in pursuant with the Investment Funds Regulations. (3) Meet at least twice annually with the Compliance Officer (Compliance Committee), the Money Laundry and Terrorist Finance Officer of the Fund Manager, to ensure compliance with all applicable laws and regullations. (4) Approval of any recommendations made by a liquidator if appointed. (5) Ensure completeness, accuracy and compliance of the Fund s terms and conditions with the Investment Funds Regulations. (6) Ensure adherence by the Fund Manager to its obligations to achieve the best interest of the unit holders in accordance with the terms and conditions of the fund and the terms of the Investment Funds Regulattions. (7) To act in a good faith and prudence for the best interest of the Fund and its unit holders. 17. Fund Manager The Fund Manager is FALCOM Financial Services. The Fund is FALCOM s first Sharia-compliant Saudi Riyal Sukuk Fund. FALCOM is an authorized person under the Authorized Persons Regulations vide license number dated 24/4/1427 AH. FALCOM Financial Services Head Office, Prince Mohammad Bin Abdul Aziz St. ( Al- Tahlia ) P.O. Box 884 Riyadh

14 Tel +966(1) Fax +966(1) Custodian FALCOM Financial Services is the Custodian of the Fund. The address of Custodian is as stated above. 19. Auditor KPMG is appointed by the Fund Manager as Fund External Auditor. Riyadh, Olyan Building, Al-Ahsa St. P.O. Box Riyadh Tel +966(1) Annual Audited Financial Statements FALCOM will prepare a semi-annual unaudited report within 45 days of the end of the period reviewed by external auditor and an annual audited report, which includes financial statements that will be prepared in accordance with Saudi Arabian standards and regulations within 90 days from the investment fund s year-end. The annual financial statements will be audited and certified by the external auditors and made available free upon request from the branch offices of FALCOM. The first fiscal year of the Fund ends on 31/12/2007, and on 31 December of each calendar year thereafter. 21. Characteristics of the units The Fund Manager may issue an unlimited number of none-voting units in FALCOM Saudi Riyal Sukuk Fund, all of a single class. Each unit represents a proportional share in the underlying investments equal with other units. 22. Members of the Shariah Board of the Fund The Sharia Advisory Board (the Sharia Board ) of the Fund is the FALCOM Financial Services Shariah Board, which consists of the following scholars: Shaikh Abdallah Ibn Sulaiman Almaniya: Shaikh Abdullah was Chairman of the cassation Court in Makkah Al Mukarramah and has been a member of the Senior Ulema Board since its inception. He was also Vice General President of Scientific, interpretation, call and guidance research Department. Sheikh Abdullah is a member of Shariah Supervisory Committees of numerous Banks in Saudi Arabia and word wide. He is Deputy Chairman of the Shariah Board of Accounting and Auditing Organization of Islamic Financial Instituttions. He has compiled a number of fatwas and has written several books on Islamic Banking. Sheikh Dr. Mohammed Ibn Ali Al-Garie: Dr. Al-Garie holds a Ph.D. in economics from the Universsity of California. He is a professor of Islamic Economics at King Abdul Aziz University. He is an advisor at 9

15 the Islamic Jurisprudence Academy of the Islamic World League. Dr. Elgari is a member of Shariah Boards of many Islamic Banks and Takaful Companies. Dr. Hamad Ibn Abd Al-Rahman Al-Junaidil. Dr. Hamad is Associate Professor in the College of Shariah Department of Economics and Business Administration of Al Imam Mohammad Ben Saoud Universsity. Selection Criteria Sukuk are tradable certificates that offer predictable return at relatively lower risk. Sukuk are certificates represent undivided shares in a real asset. Sukuk are asset-based, thus representing ownership of Sukuk holders of the income generated there from. This income generating asset can create a cash flow via a contractual relationship of Ijara, Musharakah, or Mudaraba contracts, etc. Sukuk holders would own an asset which produces usufruct; usufruct sold to a third party via an Ijara contract, thus creating a cash flow. Periodical lease payments by the Issuer will constitute a cash flow representing Sukuk income. Sukuk holders will, therefore, receive a periodic predictable income through lease payments that could be fixed or floating depending on the terms of the lease contract, thus creating a fixed or floating income security. At maturity, the issuer will sell the asset back, thus providing the issuer sufficient amount of funds to pay to Sukuk holders the face value of the Sukuk. Sukuk Certificates could be based on other Sharia contracts such as Istisna a, Muzara a or Murabaha. The Sharia Board of the Fund reviews the activities of the Fund on quarterly basis. 23. Initial offers The minimum required capital is SR 10 million. The initial subscription period will be open for initial period as determined by the Fund Manager. The initial subscription proceeds will be placed in cash or cash-equivalent, low-risk instruments. 24. Investment by the Fund Manager in the Fund FALCOM Financial Services in the capacity of Fund Manager may invest seed money at inception that may gradually be decreased to a level deemed appropriate. 25. Subscription and Redemption Procedures 10

16 Subscription procedures: Investors wishing to purchase units in the Fund shall do so by completing, signing and delivering the subsscription application form to any FALCOM branch, together with the investment amount. If payment is made in checks or drafts, investment in the fund will only be executed upon clearing of funds. If payment for units is made in a currency other than the denomination currency of the fund (i.e. Saudi Riyaals), the payment currency will be converted to the Fund s currency by the Fund Manager at the prevailing exchange rate at the time and the purchase will become effective on the forward unit price. Regardless of the receipt of the signed subscription form or any other requirements, FALCOM reserves the right to decline any additional subscriptions for the Fund without giving any reason. In this case, FALCOM will refund the investor with the subscription amount without delay. Redemption procedures: Redemption transactions will be processed on the following valuation day on which the redemption reqquests are received. Investors may totally or partially redeem their participation amounts. If any redemption would reduce a participant s investment in the Fund to below the minimum required participation amount as specified, the entire investment must be redeemed. FALCOM is not obliged to redeem more than 10% of the total number of units in the Fund on any valuation day. The remaining redemption will be paid on the subsequent valuation date. If the valuation of the Fund is suspended, the redemption request of units of the Fund submitted on the suspension date or thereafter, will be redeemed on the next valuation date when FALCOM terminates suspension of valuation. The redemption proceeds will be paid within four business days from the date of following valuation. 26. Valuation of the assets of the Fund (i) The unit value of the Fund is computed by dividing the total value of assets plus all income including accrued income, less management fee and any other accrued expenses, by the total number of units outstanding at that time. (ii) (iii) FALCOM Saudi Riyal Sukuk Fund will be valued weekly on each Monday. Subscription and Redemption applications will be processed on forward prices, and the maximum time/date for receiving the participation and redemption requests is 12:00 noon of the business day that preceding the valuation date. (iv) FALCOM Saudi Riyal Sukuk Fund s prices will be published weekly on Tadawul and FALCOM websites. 27. Winding-up and Appointment of a Liquidator The CMA has the authority to appoint a successor for the manager, a liquidator for the Fund or to take any 11

17 action as it deems appropriate in accordance with the Investment Fund Regulations. 28. Termination of The Fund If the Fund Manager noticed that the value of the fund s assets under management is insufficient to justify economical operation of the Fund, or if, due to any alteration of laws, regulations or other circumstances that the Fund Manager may deem an appropriate reason for terminating the Fund, the Fund Manager may, subject to the CMA approval, terminate the Fund upon 60 days prior notice to the shareholders. In such case, the Fund s assets will be liquidated, its liabilities discharged and the remaining proceeds of such liquiddation will be distributed to the participants within 30 days of commencement of liquidation in proportion which their units bear to the total units. 29. Reporting to unit holders Investors will receive within 30 days from the end of each quarter a quarterly report showing the status of their investments together with their respective valuations. The report will be available free of cost. 30. Conflicts of interest The Investor understands and accepts that FALCOM, the Fund Manager, a Delegated party or a Connnected party or director, officer or employee may, from time to time, have a position in, or underwrite any investment held in the fund, purchase or sell such investments for its other customers, have banking relationships with companies with which the fund is dealing. FALCOM, delegated party or the Fund Manager may, from time to time, deal on the Fund s behalf with a connected party upon terms no less favorable to the fund than would be obtained from a non-affiliated counter party. FALCOM, delegated party or Fund Manager may hold, purchase, or sell for the Fund Units unless this action is construed as favoritism. The procedure undertaken to resolve any conflict of interest will be made available upon request. 31. Amendment to the terms and conditions The investor agrees that the Fund Manager may at any time and at its sole discretion amend these Terms and Conditions, provided that it obtains the prior approval of CMA. It is also required that the Fund Manaager notifies investors of the proposed changes and furnishes them with a copy of the amended text. The amendments will become effective 60 days from the date of any such notice. 32. Complaints procedure Any complaints that may arise should be submitted to the following address: Head of Legal and Compliance FALCOM Financial Services Prince Mohammad Ben Abdul Aziz Street (Tahlia) P.O. Box 884 Riyadh Tel +966 (1) Fax +966 (1)

18 All responds to any complaints will be available upon request. 33. Governing law (A) The Fund is regulated by the laws of Saudi Arabia, the Regulations issued by Capital Market Authority (CMA) and this Terms and Conditions, as amended. (B) Any disputes arising between the parties of this Agreement (the Terms and Conditions) shall be referred to the Disputes Settlement Committee of the CMA. 34. Compliance with regulations The terms and conditions and other documentation of the Fund comply with Investment Funds Regulations issued by the CMA. They contain complete, fair and accurate disclosures of all material facts relevant to the Investment Fund. 13

19 35. Appendix (1): Summary of Financial Disclosure Item Description 1 Subscription Fees 0.50% of participation amount 2 Redemption Fees 0.50% of redeemed amount (if redemption is made within the first 3 months of participation) 3 Management Fees 1.00% of NAV annually 4 Sharia Advisory Fee 0.25% of NAV annually 5 Custodian Fee 0.50% of NAV annually 6 External Auditor Fee SAR 22,000 Annually 7 Borrowing Charges At duly prevailing rates at time of transaction. 8 Independent Fund Board Members Compensation SR. 3,000 per meeting, capped at SR. 5,000 per month in cases where there are more than one meeting in a month. These fees are covered by the management fees charged by the Fund. 14

20 Continuing APPENDIX 1 1 Minimum Initial Subscription ndividuals: SR 100,000 nstitutions: SR 500,000 2 Minimum Additional Subscription and SR 25,000 Redemption amounts 3 Minimum Balance ndividuals: SR 100,000 nstitutions: SR 500,000 4 Day for accepting Subscriptions and Every business day Redemption requests (daily) 5 Valuation Day (weekly) Monday 6 Redemption Payment Period from Valuation Day Four business days 7 Risk profile Moderate 8 Unit Price at Inception SR 1,000 9 Currency of Fund Saudi Riyal 10 Risk Tolerance Moderate 11 Benchmark nternal Sukuk Benchmark 12 Investment Strategy nvesting in medium to long term Sukuk that enjoy relatively high level of capital preservation, growth and competitive returns over the long term 15

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