Last checked at 23 Apr 2009 10:25
For immediate release 23 April 2009
THE FAMILY SHARI'AH FUND LIMITED
(the 'Fund')
Maiden Preliminary Results for the Period Ended 31 December 2008
The Family Shari'ah Fund Limited, a multi-asset class fund providing investors with exposure to a variety of Shari'ah compliant investments predominantly outside of the GCC region, is pleased to announce its maiden preliminary audited results for the period ended 31 December 2008. The period under review saw the successful launch of the Fund, and admission to the AIM market of the London Stock Exchange, on 25 July 2008.
These results, the financial timetable and the latest monthly investment manager's report are also available on the Fund's website (www.familyshariahfund.com).
The financial statements and the notice of the AGM (which be held on 15 June 2009) will be sent to shareholders prior to 25 May 2009.
For further information, please contact:
| The Family Office (Investment Manager) | Tel: +973 (17) 221177 |
| Andrew Paine - CFO | |
| Richard Joye - Projects Manager | |
| Blomfield Corporate Finance (Nominated Adviser) | Tel: +44 (0)20 7489 4500 |
| James Pinner / John Simpson / Alan MacKenzie | |
| Buchanan Communications (Public Relations) | Tel: +44 (0)20 7466 5000 |
| Bobby Morse / James Strong |
CHAIRMAN'S STATEMENT
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
It gives me pleasure to present the report and accounts of The Family Shari'ah Fund Limited (the Fund) for the initial period to 31 December 2008 following the Fund's successful launch and admission to the AIM market of the London Stock Exchange in July 2008.
The Fund invests in a wide range of instruments that are Shari'ah-compliant, sourced from major financial markets around the world. While it is disappointing to announce a reduction in the Fund's net asset value from $31.6million to $27.8million or 12% in the first reporting period, this should be viewed in the context of the market conditions which have been characterised by a general decline in asset prices together with reduced yields on short term instruments.
The Investment Manager has adopted a cautious approach to risk by maintaining a large proportion of the Fund's assets in short term instruments. The Fund is therefore in a position to take advantage of attractive opportunities in the future.
Whilst volatility in financial markets can be expected to continue for some time, there will also be opportunities to acquire assets that better reflect fundamental value than has generally been the case in recent years. Accordingly the Fund can continue to fulfil its mandate to build a portfolio of assets which are Shari'ah compliant to achieve long term capital appreciation.
I would like to thank my fellow Directors and the members of the Shari'ah Supervisory Board for their efforts and also those teams of professionals at the Investment Manager and other supporting firms, for all their hard work during this demanding first period.
Peter Robinson
Chairman
Date: 20 April 2009
Manama, Kingdom of Bahrain
THE FAMILY SHARI'AH FUND LIMITED
(AN ISLAMIC FUND)
INVESTMENT MANAGER'S REPORT
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
We have been appointed by the Board of Directors of the Company as Investment Manager with the objective of achieving long-term capital appreciation from a Shari'ah-Compliant, diversified, investment portfolio characterised by a moderate level of risk.
2008 has been an eventful and a very challenging year for the banking and the wealth management industry, as well as the entire global economy. With the current financial and economic crisis finding its roots in the leveraged and opaque US mortgage and financial system, we have witnessed the collapse of well-established century-old institutions. With an Investment Policy and a budget plan designed around wealth preservation across market cycles and our prudent approach we have deployed capital in a cautious manner, focusing on risk management and long-term objectives.
Within the boundaries of the Investment Policy, we have significantly deviated from the original implementation plan, which was already prudent and was built with the objective of deploying the Company's capital in phases into the global markets. We have taken the call of significantly overweight cash despite the low profit rates environment, to minimize the exposure to the sukuks and the equity markets, that we believed were bearing a high level of risk and were too volatile.
In this context the MSCI World Islamic Index fell by (29.93%), and the Dow Jones Citigroup Sukuk Index reported a decrease of (18.23%) for the period from 25 July 2008 to 31 December 2008.
Acting in accordance with the objectives of the Company and the expectations of the shareholders, our prudent approach implemented in phases resulted in a decrease of the net asset value of the Company's assets, net of all fees, of USD3,788,138.
At year-end, the portfolio of assets is still positioned with the objective of preserving capital.
Richard Joye
Member of the Investment Committee
On behalf of the Investment Manager
The Family Office Co. BSC(c)
DIRECTORS' REPORT
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
The Directors present their report and audited financial statements for the Family Shari'ah Fund Limited (the "Fund" or the "Company") for the period ended 31 December 2008.
Principal Activities
The principal activity of the Fund is to carry on the business of an investment company with the investment objective to provide investors with a diversified pool of Shari'ah Compliant assets and consistent risk-adjusted returns over a market cycle via an active and diversified asset allocation programme. The fund aims at geographic diversification of investments, predominantly outside the GCC (Gulf Cooperation Council) and enhances liquidity through trading of the Fund's shares on the Alternative Investment Market.
Listing
The Fund was admitted to trading on the AIM market of the London Stock Exchange ("LSE") and the shares of the Fund started trading on 25 July 2008.
Substantial Shareholding
At 31 December 2008, the Fund had notification that the following shareholders had a beneficial interest of 3% or more of the Fund's issued share capital:
| No. of Shares % of Holding | |||||||||
| Sumu Al Khaleej Trading Company | 3,000,000 | 9.51% | |||||||
| Ibrahim Abdullah Al Munajem | 3,000,000 | 9.51% | |||||||
| Ahmed Abdullah Al Munajem | 3,000,000 | 9.51% | |||||||
| Abdulaziz Al Munajem | 3,000,000 | 9.51% | |||||||
| Saleh Abdullah Al Munajem | 3,000,000 | 9.51% | |||||||
| Ali Ibrahim Al Munajem | 3,000,000 | 9.51% | |||||||
| Abdullah Abdullatif Al Fozan | 3,000,000 | 9.51% | |||||||
| Heraymila Investments Limited | 2,000,000 | 6.33% | |||||||
| Asasat Investments Company | 1,000,000 | 3.17% | |||||||
| Abdulwahab Said Al Sayed | 1,000,000 | 3.17% | |||||||
| Omar Hamad Al Mashal | 1,000,000 | 3.17% | |||||||
| Addax Bank B.S.C. (c) | 1,000,000 | 3.17% | |||||||
| 27,000,000 | 85.58% | ||||||||
DIRECTORS' REPORT (continued)
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
Review of the Development of the Business
See investment manager's report.
Results for the Period and State of Affairs as at 31 December 2008
The balance sheet at 31 December 2008 and statement of income for the period from 25 July 2008 (date of commencement of operations) to 31 December 2008 are set out on pages 16 and 17, respectively.
Dividend
No dividend was paid or proposed during the period.
Directors
The Directors, who served during the period and to the date of this report, are as follows:
| Appointed on | ||||||||||||
| William Morrison | 5 March 2008 | |||||||||||
| Abdulmohsin Al-Omran | 5 March 2008 | |||||||||||
| Christopher Drew Dixon | 7 May 2008 | |||||||||||
| Dr. Reinhard Leopold Klarmann | 7 May 2008 | |||||||||||
| Peter Robinson | 7 May 2008 | |||||||||||
Directors' Interests
The Directors do not have any shareholdings in the Fund or any options over shares in the Fund as at 31 December 2008. None of the Directors were granted or exercised any share options during the period.
Directors' Fees
The total amounts incurred for Directors' fees during the period were as follows:
| US$ | |||||||||||
| William Morrison | 12,500 | ||||||||||
| Abdulmohsin Al-Omran | 12,500 | ||||||||||
| Christopher Drew Dixon | 10,000 | ||||||||||
| Dr. Reinhard Leopold Klarmann | 10,000 | ||||||||||
| Peter Robinson | 13,333 | ||||||||||
| Total | 58,333 | ||||||||||
Corporate Governance Statement
There are no specific corporate governance guidelines in the Cayman Islands however, the Directors believe that the Fund complies with the corporate governance regime of the Cayman Islands.
Whilst the Fund is not subject to the Combined Code applicable to companies listed on the Official List, the Directors recognise the importance of sound corporate governance. The Fund intends to comply with the Corporate Governance Guidelines for AIM Companies as published by the Quoted Companies Alliance (as far as such guidelines are appropriate to a fund of its size and nature).
The Fund has adopted a code of conduct for its Directors' and key employees' share dealings, which the Directors consider is appropriate for the Fund given its nature as an AIM quoted investment company and as the Fund has no executive Directors and has no share option or incentive schemes. The Directors will comply with Rule 21 of the AIM Rules for Companies as published by the LSE relating to Directors' dealings and, in addition, will take all reasonable steps to ensure compliance by the Fund's applicable employees.
The Directors have established an Audit Committee and a Remuneration and Nomination Committee, each with formally delegated roles and responsibilities. The Audit Committee is comprised of all three of the independent non-executive Directors; Peter Robinson (Chairman), Christopher Dixon and Dr. Reinhard Klarmann. The Remuneration Committee comprises of Peter Robinson (Chairman), Christopher Dixon and William Morrison. The Committees meet as often as required but in any event at least once per year.
The Audit Committee will be responsible for ensuring that the financial performance of the Fund is properly reported on and monitored and for meeting the auditors and reviewing the reports from the auditors relating to the financial statements and internal control systems.
The Remuneration and Nomination Committee will, where appropriate given the size and nature of the Fund and the composition of the Board, review the performance of the executive (if any) and non-executive Directors and will set and review the scale and structure of their remuneration and the terms of their service agreements and letters of appointment with due regard to the interest of shareholders. No Director is permitted to participate in discussions or decisions concerning his own remuneration.
Shari'ah Supervisory Board
The Shari'ah Supervisory Board is responsible for ensuring that the Fund's activities are in compliance with Shari'ah law.
Statement of Directors Responsibilities in Respect of the Financial Statements
The Directors are responsible for the preparation of financial statements for each financial period which present fairly the Fund's state of affairs as at the end of the period and the results of operations for the period then ended.
In preparing those financial statements, the Directors are required to:
• ensure that the financial statements comply with the Memorandum and Articles of Association and International Financial Reporting Standards, as published by the International Accounting Standards Board;
• select suitable accounting policies and then apply them on a consistent basis;
• make judgments and estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Fund will continue in business.
The Directors are responsible for keeping proper accounting records, for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
On behalf of the Directors:
Peter Robinson
Abdulmohsin Al-Omran
Date: 20 April 2009
AUDIT COMMITTEE REPORT
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
The Audit Committee is appointed by the Board from the non-executive Directors of the Fund. The Audit Committee is responsible for ensuring that the financial performance of the Fund is properly reported on and monitored and for meeting the auditors and reviewing the reports from the auditors relating to the financial statements and internal control systems. It will meet at least once a year with the auditors to discuss their remit and any issues arising from the audit.
Composition of the Audit Committee
The members of the Audit Committee are:
Name and Date of Appointment
Peter Robinson (Chairman) - 7 May 2008
Christopher Dixon - 7 May 2008
Dr. Reinhard Klarmann - 7 May 2008
The Board expects the Audit Committee members to have an understanding of:
the principles of, content of, and developments in financial reporting including the applicable accounting standards and statements of recommended practice;
key aspects of the Fund's operations including corporate policies, company financing, products and systems of internal control;
matters that influence or distort the presentation of the financial statements and key figures; and
the principles of, and developments in, company law, sector-specific laws and other relevant corporate legislation.
In addition, the Board expects the Audit Committee members to have an understanding of:
the role of internal and external auditing and risk management;
the regulatory framework for the Fund's businesses; and
environmental and social responsibility and best practices.
Meetings
The Audit Committee is required to meet at least once a year. The Audit Committee can invite the executive management and senior representatives of the external auditors to attend any of its meetings in full, although it reserves the right to request any of these individuals to withdraw. Other senior management are invited to present such reports as they are required for the Committee to discharge its duties. The Audit Committee met once, together with the external auditors and the CFO of the Investment Manager. The Audit Committee discussed during this meeting the audited accounts and the internal and reporting systems.
Overview of the Actions Taken by the Audit Committee to Discharge its Duties
External Auditors
The Audit Committee is responsible for the development, implementation and monitoring of the Fund's policy on external audit. The policy assigns oversight responsibility for monitoring the independence, objectivity and compliance with ethical and regulatory requirements to the Audit Committee. The policy states that the external auditors are jointly responsible to the Board and the Audit Committee and that the Audit Committee is the primary contact.
Overview
As a result of its work during the period, the Audit Committee has concluded that it has acted in accordance with its terms of reference and has ensured the independence and objectivity of the external auditors. The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee.
Approval
The Audit Committee has approved the annual report.
This report was approved by the Audit Committee and signed on its behalf by:
Peter Robinson
Chairman of the Audit Committee
Date: 20 April 2009
Manama, Kingdom of Bahrain
REMUNERATION AND NOMINATION COMMITTEE REPORT
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
The Remuneration and Nomination Committee is appointed by the Board from the non-executive Directors of the Fund. The Remuneration and Nomination Committee is responsible to review the performance of non-executive Directors and to set and review the scale and structure of their remuneration and the terms of their service agreements and letters of appointment with due regard to the interests of Shareholders. In determining the remuneration of the Directors and Officers of the Company, the Remuneration and Nomination Committee will seek to attract and retain Board members of the highest caliber. The Remuneration and Nomination Committee will also meet as required for the purpose of considering new or replacement appointments to the Board.
Composition of the Remuneration and Nomination Committee
The members of the Remuneration and Nomination Committee are:
Name and Date of Appointment
Peter Robinson (Chairman) - 7 May 2008
Christopher Dixon - 7 May 2008
William Morrison - 7 May 2008
The Board expects the Remuneration and Nomination Committee members to have an understanding of:
key aspects of the Directors' roles and responsibilities and involvement;
matters that influence the performance of the Directors and
the principles of Directors' remuneration.
Meetings
The Remuneration and Nomination Committee is required to meet at least once a year. The Remuneration and Nomination Committee can invite the executive management and senior representatives of the external auditors to attend any of its meetings in full, although it reserves the right to request any of these individuals to withdraw. The Remuneration and Nomination Committee met once. The Remuneration and Nomination Committee discussed during this meeting the remuneration of the Directors and the Chairman of the Board, as well as a proposal for the nomination for the AGM.
Overview of the Actions Taken by the Remuneration and Nomination Committee to Discharge its Duties
Overview
As a result of its work during the period, the Remuneration and Nomination Committee has concluded that it has acted in accordance with its terms of reference and is satisfied with the conduct of the Directors. The Chairman of the Remuneration and Nomination Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee.
Approval
The Remuneration and Nomination Committee recommends to the Board that the remuneration of the Directors remains unchanged.
The Remuneration and Nomination Committee recommends to the Board that the composition of the Board of Directors remains unchanged.
This report was approved by the Remuneration And Nomination Committee and signed on its behalf by:
Peter Robinson
Chairman of the Audit Committee
Date: 20 April 2009
Manama, Kingdom of Bahrain
REPORT OF THE SHARI'AH SUPERVISORY BOARD
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS) TO
31 DECEMBER 2008
In the name of Allah, The Beneficent, The Merciful
Assalam Alaikum Wa Rahmat Allah Wa Barakatuh
In compliance with the letter of appointment and the Fund's prospectus, we are required to submit the following report:
We have reviewed the principles and the contracts relating to the transactions and applications introduced by The Family Shari'ah Fund Limited (the "Fund") during the period. We have also conducted our review to form an opinion as to whether the Fund has complied with Shari'ah Rules and Principles and also with the specific fatwas, rulings and guidelines issued by us.
The Fund's management is responsible for ensuring that the financial institution conducts its business in accordance with Islamic Shari'ah Rules and Principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Fund, and to report to you.
We conducted our review which included examining, on a test basis, each type of transaction, the relevant documentation and procedures adopted by the Fund.
We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Fund has not violated Islamic Shari'ah Rules and Principles.
In our opinion:
We beg Allah the Almighty to grant us all the success and straight-forwardness.
Wassalam Alaikum Wa Rahmat Allah Wa Barakatuh
Sheikh Nizam Yaquby
Chairman, Shari'ah Supervisory Board
On behalf of Shari'ah Supervisory Board
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF
We have audited the accompanying financial statements of The Family Shari'ah Fund Limited (the "Fund"), which comprise the balance sheet as at 31 December 2008 and the statements of income, changes in equity and cash flows for the period from 25 July 2008 (date of commencement of operations) to 31 December 2008, and a summary of significant accounting policies and other explanatory notes.
Board of Directors' Responsibility for the Financial Statements
The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of 31 December 2008, and its financial performance and its cash flows for the period from 25 July 2008 (date of commencement of operations) to 31 December 2008 in accordance with the International Financial Reporting Standards.
Date 20th April 2009
Ernst & Young
Manama, Kingdom of Bahrain
THE FAMILY SHARI'AH FUND LIMITED
BALANCE SHEET
31 DECEMBER 2008
| | |||||
| Notes | US$ | ||||
| ASSETS | |||||
| Balances with banks | 16,805,698 | ||||
| Investments at fair value through statement of income | 4 | 7,827,150 | |||
| Murabaha receivables | 5 | 3,038,750 | |||
| Other assets | 6 | 500,707 | |||
| TOTAL ASSETS | 28,172,305 | ||||
| LIABILITIES AND EQUITY | |||||
| LIABILITIES | |||||
| Due to investment manager | 7 | 204,942 | |||
| Other payables and accruals | 8 | 205,501 | |||
| TOTAL LIABILITIES | 410,443 | ||||
| EQUITY | |||||
| Share capital | 10 | 315,500 | |||
| Share premium | 10 | 31,234,500 | |||
| Accumulated loss | (3,788,138) | ||||
| TOTAL EQUITY | 27,761,862 | ||||
| TOTAL LIABILITIES AND EQUITY | 28,172,305 |
THE FAMILY SHARI'AH FUND LIMITED
STATEMENT OF INCOME
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS)
TO 31 DECEMBER 2008
| Notes | US$ | |||
| INCOME | ||||
| Unrealised loss on investments | 4 | (1,991,958) | ||
| Realised loss on investments | 4 | (1,072,593) | ||
| Murabaha income | 140,243 | |||
| Dividend income | 36,974 | |||
| TOTAL LOSS | (2,887,334) | |||
| EXPENSES | ||||
| Management fee | 7 | 193,398 | ||
| General and administration expenses | 9 | 707,406 | ||
| TOTAL EXPENSES | 900,804 | |||
| NET LOSS FOR THE PERIOD | (3,788,138) | |||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 14,435,205 | |||
| EARNINGS PER SHARE (BASIC AND DILUTED) | (0.262) | |||
The attached notes 1 to 18 are an integral part of these financial statements.
THE FAMILY SHARI'AH FUND LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS)
TO 31 DECEMBER 2008
| Number of | ||||
| shares | US$ | |||
| Shares issued during the period | ||||
| Share capital | 31,550,000 | 315,500 | ||
| Share premium | - | 31,234,500 | ||
| 31,550,000 | 31,550,000 | |||
| Net loss for the period | - | (3,788,138) | ||
| Balance at 31 December 2008 | 31,550,000 | 27,761,862 | ||
THE FAMILY SHARI'AH FUND LIMITED
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 25 JULY 2008 (DATE OF COMMENCEMENT OF OPERATIONS)
TO 31 DECEMBER 2008
| US$ | |||
| OPERATING ACTIVITIES | |||
| Net loss for the period | (3,788,138) | ||
| Net change in: | |||
| Investments at fair value through statement of income | (7,827,150) | ||
| Murabaha receivables | (3,038,750) | ||
| Other assets | (500,707) | ||
| Due to investment manager | 204,942 | ||
| Other payables and accruals | 205,501 | ||
| Net cash used in operating activities | (14,744,302) | ||
| FINANCING ACTIVITY | |||
| Proceeds from issuance of shares | |||
| Share capital | 315,500 | ||
| Share premium | 31,234,500 | ||
| Net cash from financing activity | 31,550,000 | ||
| NET INCREASE IN BALANCES WITH BANKS AND | |||
| BALANCES WITH BANKS AT 31 DECEMBER | 16,805,698 | ||
| Supplemental information: | |||
| Murabaha income received | 101,493 | ||
| Dividends received | 36,974 | ||
1 INCORPORATION AND ACTIVITIES
The Family Shari'ah Fund Limited (the "Fund") is a Shari'ah-compliant multi-asset class investment company. The Fund is a Cayman Islands exempted company which is not registered with the Cayman Islands Monetary Authority ("CIMA"). The Fund invests in a range of Shari'ah-compliant assets, products and investments. The Fund's strategy is to focus on providing specialised Shari'ah-compliant financial products that appeal to a growing market of investors who desire Shari'ah-compliant economic equivalents to conventional assets and instruments.
The investment objective of the Fund is to achieve long-term capital appreciation from a Shari'ah-compliant, diversified, investment portfolio characterised by a moderate level of risk. The Fund operates under the overriding principle that all investments must be Shari'ah-compliant. The Fund's investment objectives are therefore devised so as to provide investors with a diversified pool of Shari'ah-compliant assets, consistent risk-adjusted returns over a market cycle via an active and diversified asset allocation programme, geographic diversification of investments and liquidity through trading of the Fund's shares on the AIM market of the London Stock Exchange (AIM).
The activities of the Fund are subject to Islamic Investment Guidelines, as defined from time to time by the Shari'ah Supervisory Board ('SSB'). The SSB consist of two members, as mentioned on page-3.
The SSB is responsible for:
reviewing and approving the "Islamic Investment Guidelines" of the Fund;
reviewing the Fund's investment to ensure that they are Shari'ah compliant;
receiving reports from the investment manager to ensure adherence to Islamic Investment Guidelines; and
advising the Directors on corporate interest revenue purification and selecting appropriate charities.
The Family Office Company B.S.C. (Closed), incorporated in the Kingdom of Bahrain, is the investment manager of the Fund ("Investment Manager").
The Fund has appointed Apex Fund Services (Ireland) Limited (the "Administrator" or "Apex"), an Irish limited liability company as administrator.
There were no activities between 5 March 2008 (date of incorporation) and 25 July 2008 (date of commencement of operations). The financial statements cover the period from the date of commencement of operations to 31 December 2008. This being the first period of operations, no comparatives are applicable.
The financial statements of the Fund for the period ended 31 December 2008 were approved by the Directors on 20th April 2009.
2 BASIS OF PREPARATION
The financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standard Board (IASB).
The financial statements have been prepared on a historical cost basis as modified for the measurement at fair value of investments carried at fair value through the statement of income.
The financial statements are presented in United States Dollars (US Dollars) which is the functional currency of the Fund.
3 SIGNIFICANT ACCOUNTING POLICIES
3.1 Standard issued but not yet effective
The revised IAS 1R "Presentation of Financial Statements" has been issued and is effective for the financial year beginning on or after 1 January 2009. The application of this standard will result in amendments to the presentation of the financial statements.
Management does not expect that the standard will have a significant impact on the Fund's financial statements when implemented.
3.2 Murabaha receivables
Murabaha receivables comprise commodity murabaha receivables.
Murabaha receivables are sales on deferred terms. The Fund arranges a murabaha transaction by buying a commodity (which represents the object of the murabaha) and then resells this commodity to the murabeh (beneficiary) after computing a margin of profit over cost. The sale price (cost plus the profit margin) is repaid in instalments by the murabeh over the agreed period.
Where the income is quantifiable and contractually determined at the commitment of the contract, the income is recognised on a time apportioned basis over the period of the contract based on the principal amount outstanding and profit rate agreed with the customer.
3.3 Due from and due to broker
Amounts due from and due to broker represents receivables for securities sold and payables for securities purchased respectively, that have been contracted for but not yet settled or delivered on the balance sheet date.
3.4 Financial instruments
Classification
Financial assets and liabilities are classified as held-for-trading within financial assets and liabilities at fair value through statement of income in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". Financial assets or liabilities held-for-trading are acquired or incurred principally for the purpose of selling or repurchasing in the short term.
Recognition and measurement
Investments are initially recognised at cost, being the fair value of the consideration given. All transaction costs for such instruments are recognised in the statement of income. After initial recognition, these investments are remeasured at fair value with both realised and unrealised gains or losses recorded in the statement of income.
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
3.4 Financial instruments (continued)
Trade date
All "regular way" purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Fund commits to purchase or sell the asset.
Derecognition of financial instruments
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
When the Fund has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Fund's continuing involvement in the asset.
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expires.
Fair value
Fair value represents the amount for which an asset could be exchanged between knowledgeable, willing parties in an arms length transaction. The fair value of an investment is determined by reference to the market bid price as of the balance sheet date.
Fair value of unquoted investments is determined by reference to their net asset value (NAV) as calculated by the respective administrator as of the balance sheet date.
3.5 Accrued expenses
Liabilities are recognised for amounts to be paid in the future for services received, whether billed or not.
3.6 Functional and presentation currency
Transactions in foreign currencies are recorded at the rate of exchange prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into US Dollars at the rate of exchange prevailing at the balance sheet date. Any gains or losses on translation of monetary assets and liabilities are taken to the statement of income.
Translation gains or losses on investments at fair value through statement of income are included in the statement of income.
3.7 Dividend income
Dividend is recognised when the right to receive the dividend is established.
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
4 INVESTMENTS AT FAIR VALUE THROUGH STATEMENT OF INCOME
This represents investments in instruments compliant with, or in compliance with, the principles and precepts of Shari'ah as determined by the Shari'ah Supervisory Board. Investments are made in accordance with the investment policies as laid down in the Admission Document of the Fund.
After initial measurement, the Fund measures financial instruments which are classified as at fair value through statement of income at their fair values. The fair values of financial instruments are as follows:
Investments in listed equities amounting to US$ 6,554,096, designated as held-for-trading are valued at market bid price as of the balance sheet date.
Investments in unlisted equities amounting to US$ 1,273,054, designated at fair value through statement of income are valued at their net asset value (NAV) as calculated by the respective administrator as of the balance sheet date which are carried at valuations based on non-market observable data. The Investment Manager considers the use of NAV as a reasonable basis to measure the fair market value as redemptions can take place at the prevailing NAV as disclosed by the administrator.
| 2008 | |||||
| US$ | |||||
| Purchase of investments | 14,319,110 | ||||
| Cost of investments sold | (4,500,002) | ||||
| Changes in fair value adjustments - net | (1,991,958) | ||||
| Balance, end of the period | 7,827,150 | ||||
As stated in the admission document the unlisted equity investments are subject to a quarterly third party valuation and therefore the NAV as stated herein differs from the unaudited net asset value as at 31 December 2008 as previously announced on 16 January 2009.
4 INVESTMENTS AT FAIR VALUE THROUGH STATEMENT OF INCOME (continued)
The Fund's exposure analysed by geographic region and industry sector as at 31 December 2008 is as follows:
Geographic region
| 2008 | ||||||||||||||
| US$ | ||||||||||||||
| Ireland | 2,178,498 | |||||||||||||
| Singapore | 491,127 | |||||||||||||
| Saudi Arabia | 3,884,471 | |||||||||||||
| Cayman Islands | 1,273,054 | |||||||||||||
| 7,827,150 | ||||||||||||||
Industry sector
| 2008 | |||||||||||||||||||||||
| US$ | |||||||||||||||||||||||
| Pharmaceutical and Consumer Goods | 244,002 | ||||||||||||||||||||||
| Energy | 282,124 | ||||||||||||||||||||||
| Biotechnology | 431,452 | ||||||||||||||||||||||
| Telecommunications | 315,476 | ||||||||||||||||||||||
| Others | 6,554,096 | ||||||||||||||||||||||
| 7,827,150 | |||||||||||||||||||||||
The realised and unrealised loss recognised in the statement of income for the period, on investments designated at held-for-trading and at fair value through statement of income is as follows:
| Held-for-trading | Designated at fair value through statement of income | Total | |||||
| US$ | US$ | US$ | |||||
| Unrealised loss on investments | (1,465,012) | (526,946) | (1,991,958) | ||||
| Realised loss on investments | (1,072,593) | - | (1,072,593) | ||||
| (2,537,605) | (526,946) | (3,064,551) |
5 MURABAHA RECEIVABLES
| 2008 | ||||||||||||
| US$ | ||||||||||||
| Commodity murabaha | 3,091,250 | |||||||||||
| Less: Deferred income | (52,500) | |||||||||||
|
| 3,038,750 | |||||||||||
The Murabaha is issued by a financial institution located in Europe, which is rated Aa2 and this is exposed to the precious metals industry. The effective profit rate on these facilities at 31 December 2008 is 3%. The Murabaha receivables mature within 210 days of the balance sheet date.
6 OTHER ASSETS
| 2008 | |||
| US$ | |||
| Due from broker | 368,712 | ||
| Prepayments | 131,995 | ||
| 500,707 | |||
7 RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. All transactions with related parties were in the normal course of business. The Investment Manager and related companies are deemed to be related to the Fund. Fees incurred with related parties during the period and amounts payable to related parties at the period end are disclosed below.
| Nature | Payable to | Basis | ||||||||||||
| Management fee | The Family Office Company B.S.C. (Closed) | 1.5% of the net asset value (NAV) of the Fund, calculated monthly as of the last day of each fiscal quarter using the month end net asset value and paid quarterly in arrears. | ||||||||||||
| Performance fee | The Family Office Company B.S.C. (Closed) | Is calculated in respect of each fiscal quarter if the hurdle rate (the Murabaha 3 month return) and a high water mark are met. The performance fee will be equal to 10% of the excess NAV per share over the hurdle rate multiplied by the time weighted average of the number of shares in issue in the fiscal quarter. | ||||||||||||
7 RELATED PARTY TRANSACTIONS (continued)
Balances and transactions with related parties included in these financial statements are as follows:
| 2008 | |||||||||||||||||||||
| Balance sheet | US$ | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||
| Investments at fair value through statement of income * | 1,273,054 | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||
| Due to investment manager | 204,942 | ||||||||||||||||||||
| Statement of income: | |||||||||||||||||||||
| Unrealised loss on investments * | 526,946 | ||||||||||||||||||||
| Management fee | 193,398 | ||||||||||||||||||||
| General and administration expenses | 207,014 | ||||||||||||||||||||
| 927,358 | |||||||||||||||||||||
* Investments made through investment vehicle that has common directorship.
See note 12 (c) for details of a capital commitment to a related party.
8 OTHER PAYABLES AND ACCRUALS
| 2008 | ||||||
| US$ | ||||||
| Shari'ah Supervisory Board fee payable | 91,684 | |||||
| Audit & Tax fee payable | 49,811 | |||||
| Legal fee payable | 30,941 | |||||
| Directors' fees payable | 20,000 | |||||
| Administration fee payable | 4,400 | |||||
| Other payables | 8,665 | |||||
| 205,501 | ||||||
9 GENERAL AND ADMINISTRATION EXPENSES
| 2008 | |||||||||||||||||
| US$ | |||||||||||||||||
| Organisation costs | 149,532 | ||||||||||||||||
| Insurance expense | 96,803 | ||||||||||||||||
| Shari'ah Supervisory Board fee* | 91,684 | ||||||||||||||||
| Commission expense | 66,289 | ||||||||||||||||
| Directors' fees | 58,333 | ||||||||||||||||
| Audit & Tax fee | 49,811 | ||||||||||||||||
| Professional fees | 46,165 | ||||||||||||||||
| Administration fee | 26,400 | ||||||||||||||||
| Other expenses | 122,389 | ||||||||||||||||
| 707,406 | |||||||||||||||||
* Shari'ah Supervisory Board fee comprises of US$ 2,000 for each meeting for each member of Shari'ah Supervisory Board, and US$ 5,000 for each member of Shari'ah Supervisory Board for each proposed investment, opportunity or product developed or suggested by the Fund and presented to the Board for their consideration.
10 SHARE CAPITAL
The authorised share capital of the Fund was US$ 49,990 divided into 4,999,000 shares of US$ 0.01 each, of which one share was issued for cash at par to the subscriber to the Fund's Memorandum of Association. On 5 March 2008 the subscriber share was transferred to TFO Shari'ah Manager Limited who subsequently transferred the subscribed share to The Family Office Company B.S.C. (Closed) on 19 March 2008. On 17 July 2008 the Fund's authorised share capital was increased to US$ 2,000,000. The following table sets out the authorised, issued and fully paid share capital of the Fund following admission to the AIM and at the balance sheet date. These shares were issued at a premium of US$ 0.99 per share.
| Number | 2008 | ||
| of shares | US$ | ||
| Authorised share capital | 200,000,000 | 2,000,000 | |
| Issued and fully paid up | 31,550,000 | 315,500 | |
The holders of shares are entitled to receive notice to attend and to vote at any general meeting of the Fund. On a return of assets on liquidation or otherwise, the assets of the Fund available for distribution among its members shall be applied first in repaying to the holders of the shares. The shares shall entitle the holders thereof to any dividends that may be declared in respect of their shares. The shares are not redeemable at the option of the shareholder. The Fund shall be entitled to redeem all or any of such shares at such times and in such manner as the Directors shall in their absolute discretion from time to time determine.
10 SHARE CAPITAL (continued)
The Directors intend to operate an active discount management policy through the use of share buybacks of up to 14.99% of the Ordinary Shares those were issued upon Admission. The objective is to maintain the price at which the Ordinary Shares trade in the market at a discount to Net Asset Value per Ordinary Share of no more than 5%. In implementing this policy, the Directors will have regard to prevailing market conditions and will undertake share buybacks so long as they believe that it is in the best interests of Shareholders as a whole to do so. Share buyback programmes are, within certain limitations, permissible under Cayman Islands law. Any Ordinary Shares bought back pursuant to the policy will be cancelled. There was no share buy back during the period.
11 CATEGORIES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The table below shows categories of the Fund's financial assets and financial liabilities at 31 December 2008:
| Held-for-trading | Designated at fair value through statement of income | Items at amortised cost | Total | ||||
| US$ | US$ | US$ | US$ | ||||
| Balances with banks | - | - | 16,805,698 | 16,805,698 | |||
| Investments at fair value through statement of income | 6,554,096 | 1,273,054 | - | 7,827,150 | |||
| Murabaha receivables | - | - | 3,038,750 | 3,038,750 | |||
| Other assets | - | - | 368,712 | 368,712 | |||
| Total financial assets | 6,554,096 | 1,273,054 | 20,213,160 | 28,040,310 | |||
| Due to investment manager | - | - | 204,942 | 204,942 | |||
| Other payables | - | - | 205,501 | 205,501 | |||
| Total financial liabilities | - | - | 410,443 | 410,443 |
12 RISK MANAGEMENT
The Fund is exposed to credit risk, liquidity risk and market risk. The Investment Manager's objective is to assess, continuously measure and manage the risks of the portfolio, according to the investment objective, the investment policy and the overall risk profile of the Fund. The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Fund are discussed below.
(a) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge a financial obligation and cause the other party to incur a financial loss. The Fund is exposed to credit risk on its balances with banks, broker and murabaha receivables.
The Fund has a policy to maintain balances with reputable banks and custodians which minimises the counterparty risk. S&P's long term credit rating of the custodian was A as at 31 December 2008. During the period the Fund has traded with custodians whose credit rating ranges from A-1 to A. The Investment Manager evaluates counterparty risk for any of the Fund's transactions. All transactions in listed securities are settled upon delivery using approved brokers.
Maximum exposure to credit risk
The Fund's maximum credit risk exposure as of 31 December 2008 is as follows:
| 2008 | ||||||||||||
| US$ | ||||||||||||
| Balances with banks | 16,805,698 | |||||||||||
| Murabaha receivables | 3,038,750 | |||||||||||
| Other assets | 368,712 | |||||||||||
| 20,213,160 | ||||||||||||
The Fund's financial assets are neither past due nor impaired.
(b) Market risk
Market risk arises from fluctuations in equity prices, profit rate and foreign exchange rate.
(i) Equity price risk
The Fund trades in financial instruments, to take advantage of short-term market movements. All investments present a risk of loss of capital. The Fund's investments are susceptible to equity price risk arising from uncertainties about future prices of the instruments. The Investment Manager moderates this risk through a careful selection of investments and other financial instruments within specified limits. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Fund's overall market positions are monitored on a regular basis by the Fund's Investment Manager.
Equity price risk sensitivity
A 5% increase in the fair value of investments will decrease the Fund's net loss by US$391,358, whilst all other variables held constant.
A decrease by 5% would result in an equal but opposite effect on net loss to the figures shown above, on the basis that all other variables remain constant.
12 RISK MANAGEMENT (continued)
(b) Market risk (continued)
(i) Equity price risk (continued)
This calculation is based on adjusting the fair values as at the period end. It is important to note that this form of sensitivity analysis is unrepresentative of the risks inherent in the financial instruments held by the Fund as the measure is a point-in-time calculation, reflecting positions as recorded at that date, which do not necessarily reflect the risk position held at any other time.
(ii) Profit rate risk
Profit rate risk arises from the possibility that changes in profit rates will affect future cash flows or the fair values of financial instruments.
The Fund is exposed to profit rate risk on its profit bearing murabaha receivables.
The following table demonstrates the sensitivity of the statement of income to reasonably possible changes in profit rates, with all other variables held constant:
| Increase/ | Effect on | ||
| decrease in | loss for | ||
| basis points | the year | ||
| United States Dollars | +100 | (30,388) | |
| -100 | 30,388 |
(iii) Currency risk
Foreign currency risk is the risk that as certain assets of the Fund may be invested in securities and other investments denominated in foreign currencies (i.e. non base currency), the value of such assets may be affected favourably or unfavourably by fluctuations in currency rates.
The Fund's monetary assets and liabilities are denominated in the base currency, US Dollars, and therefore the Fund is not exposed to currency risk.
(c) Liquidity risk
Liquidity risk is the risk that the Fund will encounter difficulty in meeting financial obligations as they fall due. The Fund's listed securities are considered readily realisable. The Investment Manager monitors the Fund's liquidity position on a daily basis, and a high allocation of cash is maintained within the Fund to ensure that there is no liquidity risk. The Fund has only one capital commitment to the TFO Shari'ah Co-Investment SPC program (a related party fund), representing a portfolio of assets. This capital commitment as at the balance sheet date amounted to US$ 2.7 million. The capital call depends upon investment opportunities identified by the related party fund.
The table below summarizes the maturity profile of the Fund's assets and liabilities based on the contractual arrangements or expected realizations, if contractual arrangements are not applicable. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period to maturity at the balance sheet date.
12 RISK MANAGEMENT (continued)
(c) Liquidity risk (continued)
| Less than 3 months | 3 months to 1 year | More than 1 year | Total | |||||
| US$ | US$ | US$ | US$ | |||||
| Assets | ||||||||
| Balances with banks | 16,805,698 | - | - | 16,805,698 | ||||
| Investments at fair value through statement of income | 6,554,096 | - | 1,273,054 | 7,827,150 | ||||
| Murabaha receivables | - | 3,038,750 | - | 3,038,750 | ||||
| Other assets | 500,707 | - | - | 500,707 | ||||
| Total | 23,860,501 | 3,038,750 | 1,273,054 | 28,172,305 | ||||
| Liabilities | ||||||||
| Due to investment manager | 204,942 | - | - | 204,942 | ||||
| Other payables and accruals | 205,501 | - | - | 205,501 | ||||
| Total | 410,443 | - | - | 410,443 |
As at 31 December 2008, the financial liabilities of the Fund carry no profit rate and therefore, the undiscounted contractual repayment obligations are same as above except murabaha receivables which carries profit rate at 3%.