DRAFTMAY 2004
Fortress 5 Year
Synergy Islamic Series
Tentative terms and conditions:
Seller:SG Bank & Trust
InvestmentAdvisor:Synergy Asset Management
Currency: USD
Price: 10%
Capital Protection:100%
Participation:70%
Maturity:5 Years
Basket: Basket of 5 Islamic Funds
Observation:On semi-annual basis
Redemption atNotional x [BasketPerf]
Maturity:where: 1 5
BasketPerf = Max ( ---- ∑ fixing (i) -1;0)
5i=1
2*i
Fixing (i) = 1 ∑ NAVT t/n
2*I t=1 NAV 0/n
Initial Installment:Approximately 15%
Proposed Basket of Funds:
Fund NameBloomberg Code
Alfanar Global Health Care AALEGHCA VI
Alfanar INV Holdings AALFIHA NT
Alfanar Europe LTD. AALFEURA VI
Alfanar US Capital Value AALFUSVA VI
Alfanar US Large Cap. LTD. AALFULCA VI
Objective:
Capital protection with long-term capital appreciation complying with the Shari’ ah principles.
Definitions:
Morabaha Investment Agreement
The purpose of the Morabaha-based purchase and sale transactions under the Morabaha Investment Agreement is to protect the investor’s initial capital investment in the fund, through the generation of a predetermined profit. It is expected that the principle amount applied in the commodity trade transactions and the profit generated during the life of the fund after deduction of all fees and expenses will equal the initial capital investment of the shareholders.
Bai Al Arboon
The purpose of the Bai Al Arboon Agreement transactions is to provide for capital appreciation (if any) based on the performance of five basket funds.
The investments made by each fund, comply with Islamic investment guidelines which have been approved by Shari’ ah advisers and are monitored on regular basis for compliance with Islamic investment guidelines, broadly designed by restrictions to invest in corporations or businesses involved in the following:
1-Producing, distributing or selling alcohol, tobacco, pork, gold, silver, music or pornographic productions
2-Operators of gambling casinos or producers of gambling equipment
3-Restaurants or hotels selling alcohol
4-Operators or movie theaters, music venues, or cable television channels.
5-Financial institutions
6-Investment companies that invest in restricted companies:
a)Having an interest-bearing debt to equity of more than 30%
b) Whose cash and interest –bearing debt securities is more than 30%.
c) Whose receivables are equal to or greater than 50% of total assets.
d) Whose total assets are made solely of cash, including balances with banks non-tangible assets and/or accounts receivable.
7-No basket fund will hedge any foreign currency exposure, or otherwise enter into any future, options, swaps, short sales or other transactions involving the payment or receipt of interest. No Investments in preferred shares. Uninvested cash in the basket funds will be kept in interest-free deposits or placed in short-term Morabaha transactions.
In order to provide the shareholders with advantageous economic terms, the Bai Al Arboon Agreement provides for pricing mechanism that enables the fund to generate a return, which is determined by reference to the return of the best performing basket fund, and this is achieved by paying the fund manager an upfront deposit of approximately 15% upon launching the fortress structure. This deposit acts like a call option and therefore, enabling the holder of this Shari’ah complient instrument to benefit from approximately 70% of the upside of the underlying basket of funds, while limiting the downside loss to the initial payment pf approximately 15%.